TFSA 2014

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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queerasmoi
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Re: TFSA 2014

Post by queerasmoi »

So basically - when property gifted to a spouse, the capital is marked. Let's call it yellow snow. Your spouse can put the yellow snow in her TFSA and it will accrue additional (white) snow tax-free. If your spouse withdraws the white snow and invests that in a taxable account, there is no attribution on the income. But if the yellow snow comes out, any income on that is attributed back. Which means that at one must keep a record of how much yellow snow you put into an account, so that if you ever empty all the white snow out you'll know it.
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Re: TFSA 2014

Post by BRIAN5000 »

Note that 74.1, 74.2 and 74.3 are the attribution rules for income, capital gains, and transfers to trusts respectively. From the text of the act it is clear that when the funds are withdrawn from the TFSA the attribution rules will reengage and you will have attribution on the money the money gifted to the other spouse.
IMHO and I'm often wrong, each tax planning strategy on its own (some exceptions) may add very little in the way of overall tax relief. However if several are used together over long periods of time they may actually add up to a few dollars saved.

So - wife contributes to TFSA for 5 years total amount withdrawn and full amount deposited by husband back in in the new year, no attribution. Wife makes 5 more years of contributions and withdraws full amount husband again deposits full amount back in in new year, no attribution. At no time is the money deposited from the husband withdrawn. So depending on the growth of your TFSA investments (someone like j831robert with $100,000 ) and TFSA contribution levels you can slowly move money to the spouse. I think with two TFSAs it would be easy to keep track of and may be of the most use to early retirees with 3 or 4 5 year periods to do this. (50-70)
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Re: TFSA 2014

Post by cardhu »

Brian5000 wrote:So - wife contributes to TFSA for 5 years total amount withdrawn and full amount deposited by husband back in in the new year, no attribution. Wife makes 5 more years of contributions and withdraws full amount husband again deposits full amount back in in new year, no attribution. At no time is the money deposited from the husband withdrawn. So depending on the growth of your TFSA investments (someone like j831robert with $100,000 ) and TFSA contribution levels you can slowly move money to the spouse. I think with two TFSAs it would be easy to keep track of and may be of the most use to early retirees with 3 or 4 5 year periods to do this. (50-70)
I don’t see where there is any shifting of money to the spouse in any of this ... wife’s non-reg account is 100% her own money 100% of the time, so there would be no attribution regardless of whether or not she cycled it through TFSA ... gifts from husband are 100% sheltered in TFSA 100% of the time, so again there would be no attribution regardless of whether wife cycled her own money through the TFSA prior to husband making the gift. Why not just have husband make wife’s TFSA contributions from the get-go, and wife can place her money into non-reg account directly? Same result.
QAM wrote:So basically - when property gifted to a spouse, the capital is marked. Let's call it yellow snow. Your spouse can put the yellow snow in her TFSA and it will accrue additional (white) snow tax-free. If your spouse withdraws the white snow and invests that in a taxable account, there is no attribution on the income. But if the yellow snow comes out, any income on that is attributed back. Which means that at one must keep a record of how much yellow snow you put into an account, so that if you ever empty all the white snow out you'll know it.
Your first sentence is correct … after that, not so much.

The ITA provides for a holiday from attribution as long as the gifted (the ITA refers to it “transferred”) property remains within the TFSA … as soon as the property is removed from the TFSA, the holiday is over … period ... from that moment forward, attribution resumes, in exactly the same manner it would have if the property had never been placed in the TFSA in the first place.

There is no need to keep track of the amount initially gifted (contributed) because that number is irrelevant.

Therefore, to the extent that additional snow accumulation within the TFSA represents interest and dividends, then yes, returns earned by reinvesting that white snow outside of TFSA should be free of attribution ... exactly as they would have been if the property had never been passed through TFSA in the first place ... but if the additional snow accumulation with the TFSA represents capital growth, then it would turn yellow upon contact with the original gift, and returns earned by reinvesting that snow outside of TFSA would be subject to attribution ... exactly as they would have been if the property had never been passed through TFSA in the first place

So in twa2w’s example from upthread ... his wife scores a 20-banger and turns his $5000 initial gift into $100,000, all inside the TFSA ... no attribution ... wife then withdraws the $100,000 and reinvests it in a taxable account ... now, its unlikely that such a 20-banger could be achieved through interest and dividends, so the vast majority of that return, if not all of it, would likely be of the capital growth variety ... in which case, any returns earned on that reinvested $100k from that moment forward would be attributed back to twa2w ... to do otherwise would require that the “holiday” granted by the ITA continues after the property has been removed from the TFSA, but the ITA very clearly and explicitly says that it does not.
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Re: TFSA 2014

Post by cardhu »

It seems to me that Finance may have exacerbated this confusion by creating the exception in the first place. The attribution rules apply to “income” or “gains” earned on transferred (gifted) property, and investment returns earned within a TFSA are not “income” or “gains” (from an income tax perspective), so it may have been easier, and generated less confusion, if they had simply remained silent on the subject. Oh well, water under the bridge. As we have seen so many times before (ie. the double-forex myth for US$ DRIPs at TDW is but one example), once a misconception has been let out of its cage, it is difficult to contain it again.
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Re: TFSA 2014

Post by adrian2 »

Thanks, cardhu, for the very informative posts.

I cannot help but chuckle:
cardhu wrote:but if the additional snow accumulation with the TFSA represents capital growth, then it would turn yellow upon contact with the original gift
There are additional ways of turning white snow into yellow one; they usually involve a dog, but other vertebrates work as well. :D
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Re: TFSA 2014

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You can thank QAM for the imagery.
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Re: TFSA 2014

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cardhu wrote:You can thank QAM for the imagery.
What can I say, I grew up in a suburb in Canada :P
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Re: TFSA 2014

Post by BRIAN5000 »

Income-splitting for families with kids and $10,000 annual TFSA contribution limits coming this fall, The National Post reports Stephen Harper as saying.
http://news.nationalpost.com/2014/10/03 ... l-deficit/
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Re: TFSA 2014

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There is much speculation about timing. I doubt the Cons will do anything that affects the 2014-2015 fiscal budge, i.e. a surplus has to be in hand first. I suspect whatever is done will affect the 2015-2016 fiscal year AND then the question is: Do you do it before an election or hang it out as what will happen if I get re-elected? My gut feel is that the Cons might do the TFSA increase effective 1/1/2015, but income splitting would only be effective for the 2015 tax year. Anyone's guess.
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Re: TFSA 2014

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I'm going to refrain from asking if it would be a good thing for the government to double the TFSA limit next year (as opposition supporters cannot seem to acknowledge that, besides their many faults, the Tories might get a good thing going once in a while) and I'm just going to inquire if you're likely to take advantage of the increase in the TFSA contribution limit to $10k annually.

According to the link above, this measure is expected to cost the government $30-million annually, which is really a drop in the bucket in the grand scheme of things.
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Re: TFSA 2014

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adrian2 wrote:I'm going to refrain from asking if it would be a good thing for the government to double the TFSA limit next year (as opposition supporters cannot seem to acknowledge that, besides their many faults, the Tories might get a good thing going once in a while) and I'm just going to inquire if you're likely to take advantage of the increase in the TFSA contribution limit to $10k annually.
I'm going to refrain from not answering...

Oh I'm all in favour of it. Bring it on. I really do need to shelter another $5k/year from future tax. In fact I'm in favour of removing all limits on TFSA contributions.

But that's not the issue.

The real issue is what does it do that's good for Canada in general rather than for the Cons' reelection prospects in particular? Considering that so relatively few people currently maximize the current $5.5k limit(*), how many new TFSAs will this move engender? How will it benefit those who don't yet have TFSAs?

(*) Currently only about half of eligible Canadians contribute to a TFSA. Of those only about half contribute the maximum.
According to the link above, this measure is expected to cost the government $30-million annually, which is really a drop in the bucket in the grand scheme of things.
A mere "drop in the bucket." Spoken like a true fiscal conservative :rofl:

"What's a million?" (adjusted for inflation is actually closer to $14M.)
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Re: TFSA 2014

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adrian2 wrote: I'm just going to inquire if you're likely to take advantage of the increase in the TFSA contribution limit to $10k annually.
Absolutely! Between the two of us, that's $20,000 more sheltered from tax.
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Re: TFSA 2014

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Bylo Selhi wrote:
adrian2 wrote:According to the link above, this measure is expected to cost the government $30-million annually, which is really a drop in the bucket in the grand scheme of things.
A mere "drop in the bucket." Spoken like a true fiscal conservative :rofl:

"What's a million?" (adjusted for inflation is actually closer to $14M.)
Well, it is a drop in the bucket compared to the cost of income splitting, which we should not discuss in this TFSA thread.
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Re: TFSA 2014

Post by queerasmoi »

At this rate employment wise, no I will not be able to benefit from the increased TFSA room anytime in the near future. It would be useful once I find a job but it's not a policy plank I care about.
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Re: TFSA 2014

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adrian2 wrote:I'm going to refrain from asking if it would be a good thing for the government to double the TFSA limit next year (as opposition supporters cannot seem to acknowledge that, besides their many faults, the Tories might get a good thing going once in a while) and I'm just going to inquire if you're likely to take advantage of the increase in the TFSA contribution limit to $10k annually.

According to the link above, this measure is expected to cost the government $30-million annually, which is really a drop in the bucket in the grand scheme of things.
I will be making the max, whether that's 11K or 21K (spouse and me), TFSA contribution on the first business day of 2015. As I have in the past (i.e., max on first business day). But I thought it was dubious social policy at 10K and 11K, and think it's worse at 21K.
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Re: TFSA 2014

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ockham wrote:I thought it was dubious social policy at 10K and 11K, and think it's worse at 21K.
Curious, why do you think that? What should they do?

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Re: TFSA 2014

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Target assistance to the bottom quintile rather than the top.
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Re: TFSA 2014

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like_to_retire wrote:
ockham wrote:I thought it was dubious social policy at 10K and 11K, and think it's worse at 21K.
Curious, why do you think that? What should they do?

ltr
Couple of years since I looked at this, but as I recall:
1. the social policy justification for the TFSA was to address a perceived savings deficit amongst those least advantaged by the RRSP, i.e., lower income earners, and
2. overwhelmingly, the users of the TFSA are those of high income and high net worth, a pattern that one would expect to be exaggerated further by doubling the contribution limit.

IOW, the TFSA fails to address the problem it was intended for. Doubling down on the contribution limit is doubling down on that failure.

I'm a case in point. The TFSA will reduce my clawback exposure. Great! But hardly a worthwhile social policy objective.
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Re: TFSA 2014

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Shakespeare wrote:Target assistance to the bottom quintile rather than the top.
:thumbsup:
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Re: TFSA 2014

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Shakespeare wrote:Target assistance to the bottom quintile rather than the top.
Easier said than done. With the myriad of credits and deductions, the marginal tax rate for the low income can be and is higher than the marginal rate for much higher incomes. Hence, there is already some disincentive to getting employed and stepping up the ladder. Increasing assistance for the bottom quintile would exacerbate the problem.
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Re: TFSA 2014

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adrian2 wrote:Easier said than done... Increasing assistance for the bottom quintile would exacerbate the problem.
So why are you such a fan of TFSA 1 and now of TFSA Technical Preview 2?
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Re: TFSA 2014

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Bylo Selhi wrote:
adrian2 wrote:Easier said than done... Increasing assistance for the bottom quintile would exacerbate the problem.
So why are you such a fan of TFSA 1 and now of TFSA Technical Preview 2?
You might have guessed it: self interest.
Don't you take advantage of it too, regardless of the fact that it was introduced by the big bad Tories?
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Re: TFSA 2014

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adrian2 wrote:You might have guessed it: self interest.
It wasn't just a wild guess.
Don't you take advantage of it too, regardless of the fact that it was introduced by the big bad Tories?
Of course. But the difference is that I don't then use the TFSA to justify their deification as great financial stewards. Quite the contrary, as you well know. It's simply bad policy despite the benefits the privileged few, including you and I, derive from it.
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Re: TFSA 2014

Post by queerasmoi »

And to be clear, the benefits I derive from it are moot while I'm unemployed and not earning enough to be taxable for much at all. If I wanted government policies to serve my self-interest I'd want them to stop the war on science so that I can actually find work in my field!
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Re: TFSA 2014

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queerasmoi wrote:If I wanted government policies to serve my self-interest I'd want them to stop the war on science so that I can actually find work in my field!
A tad of hyperbole, eh?
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