Harper to Double TFSA Limit to $10,000

[SF/PF]

According to you, the TFSA means that we will have wealthy people in their 80s with no "taxable income". That's wrong. There is no effective difference between an RRSP and the TFSA: you pay the tax now, or later.

TFSA-holders paid the tax - they just prepaid it.

For anyone that can afford to invest $10,000 or less per year, they will in fact have no income outside of OAS and whatever private pension they may have if they choose to limit their investment to the TFSA. I'm not sure why that is no contentious; it's a self-evident fact to anyone that actually understands how the TFSA works.

I'm not sure why that is so hard to see.

[Saipan]

4, 5, 6, years away, if ever? Too late for me to get an advantage from it... Meaningless...

WHY it's too late? Are you older than George Burns?

Edited April 8, 2011 by Saipan

[August1991]

For anyone that can afford to invest $10,000 or less per year, they will in fact have no income outside of OAS and whatever private pension they may have if they choose to limit their investment to the TFSA.

How old are you SF/PF? Do you receive OAS (or know people who receive it)?

---

For younger people, there is no practical difference between RRSP or the TFSA - or GST/HST. All these schemes are smart and mean that your savings are sheltered from tax. You pay tax when you spend money, not when you earn it.

Savings should not be taxed, until you spend them.

Edited April 8, 2011 by August1991

[SF/PF]

What the heck are you even talking about? I'm saying the percentage of people that can afford to invest $10,000 annually for 25 years are the people with >100,000 incomes. How many of those people do you know who end up with nothing for income when they retire, thus qualifying for a supplement? Give me that percentage.

I think we would both agree that the number of people that can afford to invest more than $10,000 per year is smaller than the number of people that can invest $10,000 per year. Its basically true by definition.

Of course, I'm just assuming that we can agree on this since you in fact stated the opposite.

The OAS website is saying that the max income for the GIS is $16,000. What do you think the percentage is of retired folk who have been putting $10,000 in their TFSA each year and only $16000 in retirement income? Pretty freaking low.

Every single one that doesn't have other investments or a private pension plan. So yes, perhaps the number will be relatively small if we only consider the people that put in exactly $10,000 per year, but it will be much larger if we consider people that put in $5,000-10,000 per year.

Most young people are still putting money into the RSP instead of the TFSA for the tax deduction. Seniors by far prefer the TFSA and they're the ones that have bought in the most to it.

Young people that are buying into the RRSP in preference to the TFSA are ill-informed. Over time, the TFSA is a far better investment vehicle.

1) How many wealthy people (the only ones who could save the $10,000 per year) end up with <$16000 in retirement income/year .

Lots. I have an aunt that is literally worth millions (they sold an acreage near Surrey for a huge sum of money years ago) and she qualifies for every income supplement available. You know why? Because income and wealth are NOT the same thing.

2) How long both future Conservative and Liberal governments will allow what will obviously be a fairly significant tax loophole if left unchecked.

Thankfully, I don't think it will come to that, seeing as this increase, like Harper's other "when the budget is balanced" promise, isn't going to happen.

What I won't agree with, in any sense, is that we're going to see a huge abuse of the GIS. The idea of wealthy people with nothing for income when they retire other doesn't really add up.

My point is simply that this plan will allow more people to qualify for the GIS than currently do, and some of them will be qualifying despite having pretty substantial wealth. I see that as bad policy.

[GWiz]

WHY it's too late? Are you older than George Burns?

Yup, and still alive to boot...

[SF/PF]

How old are you SF/PF? Do you receive OAS (or know people who receive it)?

Old enough to have people in my immediate family that collect CPP and OAS.

For younger people, there is no practical difference between RRSP or the TFSA - or GST/HST. All these schemes are smart and mean that your savings are sheltered from tax. You pay tax when you spend money, not when you earn it.

In some ways the TFSA can be thought of as a backwards RRSP, but the TFSA is a far better tax shelter than an RRSP. Especially for young people who are not yet at the highest income of their career. To be accurate though, with the TFSA you do in fact pay tax when you earn it, not when you spend it.

[SF/PF]

This is unrealistic. Someone saving for retirement would also have been maxing out their RRSP before maxing out their TFSA. An RRSP more effectively shelters your money from taxation if the goal is to save while working and then withdraw after retirement when your income is lower. Thus, someone with a maxed out TFSA would also have a maxed out and fairly substantial RRSP, meaning that they would have plenty of income coming from their RRSP to disqualify them from receiving the GIS supplement.

For the vast majority of people, the TFSA is the one that should be maxed out first. RRSP's should only be purchased when you're at your peak career income, since this is when they provide the biggest bang for your buck.

In fact, if you can only afford to invest up to the TFSA limit, ignoring RRSP's and putting everything into a TFSA will likely provide a lower lifetime tax bill than RRSP's would. In fairness, this is somewhat mitigated by the fact that the RRSP provides a little bonus up front in the form of an increased tax return.

I disagree. The people that "least need" help retiring are the ultra rich, who invest millions annually anyway, and for them the 10,000 TFSA will make hardly a dent in the amount of tax they pay. The people who will benefit most are the middle class: working professionals. These are the people who form the solid core of Western societies and economies and reducing taxes for them and encouraging them to save is good policy.

I can agree with this, though I believe that policy aimed at helping the middle class but ignoring the poor is, well, piss poor policy. Increasing the TFSA will increase the number of people qualifying for the GIS, and also lower the tax revenue from other forms of investments. There are better ways to achieve the goal of encouraging people to save.

Increasing the TFSA limit, while great for me, is bad policy.

[eyeball]

Why should someone who delayed consumption, put off purchases to have a nest egg in retirement have to pay higher taxes to subsidize another person who lived pay cheque to pay cheque and never saved?

No one is immune to the chance the government will screw things up and dash your hopes.

What makes your protagonist so special?

[August1991]

No one is immune to the chance the government will screw things up and dash your hopes.

What makes your protagonist so special?

Thank God someone here understands my argument.

But here's my fear: If others think as we do, then what?

Edited April 8, 2011 by August1991

[eyeball]

Thank God someone here understands my argument.

But here's my fear: If others think as we do, then what?

You are fearful that people will begin questioning why they had faith that the government wouldn't screw things up?

It's a little late for that I think. That said, the sooner people do the better.

[Moonbox]

I think we would both agree that the number of people that can afford to invest more than $10,000 per year is smaller than the number of people that can invest $10,000 per year. Its basically true by definition.

Of course, I'm just assuming that we can agree on this since you in fact stated the opposite.

Haha yes we can agree on that. I had to look back to see what the heck I'd said and I'd misunderstood you earlier. What I'd been trying to say was that the number of people who can afford 10,000/year, or even $7500/year in TFSA contributions are ones whose income is so high now that something remarkable would have to happen for them to end up with less than 16,000 in retirement income.

Every single one that doesn't have other investments or a private pension plan. So yes, perhaps the number will be relatively small if we only consider the people that put in exactly $10,000 per year, but it will be much larger if we consider people that put in $5,000-10,000 per year.

It will still be extremely small. When you consider CPP and OAS, those people will literally need to have zero other sources of income. The type of people who can save 5-10k per year into their TFSA are not people who have zero income when they retire.

Lots. I have an aunt that is literally worth millions (they sold an acreage near Surrey for a huge sum of money years ago) and she qualifies for every income supplement available. You know why? Because income and wealth are NOT the same thing.

So she has millions of dollars of wealth and is not making ANY income with it? Even a million dollars in lousy GIC's or savings accounts would earn enough to disqualify her.

My point is simply that this plan will allow more people to qualify for the GIS than currently do, and some of them will be qualifying despite having pretty substantial wealth. I see that as bad policy.

My point is the GIS is not something worth worrying about because the amount of wealthy people who qualify for it because they've saved in their TFSA is going to be small. Where this plan could really hurt us is with people like me in their late 20's or early 30's who invest in equities in their TFSA and would be able to hold them there for 30-40 years. Capital gain taxes on most personal investors my age won't even exist if the $10,000 limit lasts forever.

Like you said though, it's not going to happen. Even if it goes through it won't be kept that way for long.

Edited April 11, 2011 by Moonbox

[Battletoads]

As much as I like the TFSA now I can see this being a fiscal bombshell down the road.

[August1991]

Where this plan could really hurt us is with people like me in their late 20's or early 30's who invest in equities in their TFSA and would be able to hold them there for 30-40 years. Capital gain taxes on most personal investors my age won't even exist if the $10,000 limit lasts forever.

Like you said though, it's not going to happen. Even if it goes through it won't be kept that way for long.

As much as I like the TFSA now I can see this being a fiscal bombshell down the road.

The capital gain and benefit of a principle residence are also tax-free. People view this as perfectly normal. How is the TFSA any different?

----

My concern is different. CPP, Gains and OAP offer something around $2000/monthly. This sum is reduced for people who have separate (taxable) sources of income. In effect, people who saved for retirement are subsidizing people who didn't.

Edited April 12, 2011 by August1991

[Moonbox]

My concern is different. CPP, Gains and OAP offer something around $2000/monthly. This sum is reduced for people who have separate (taxable) sources of income. In effect, people who saved for retirement are subsidizing people who didn't.

This is something that has always bothered me as well. In the interest of fairness, I think everyone should receive CPP etc. You should be rewarded for having saved for retirement.

[Scotty]

This is something that has always bothered me as well. In the interest of fairness, I think everyone should receive CPP etc. You should be rewarded for having saved for retirement.

Federal public servants pay into their pension plan. And they pay into CPP their whole lives At sixty-five, the amount of their pension plan is reduced by the amount they can collect from CPP. This means that, in effect, their lifetime worth of contributions to CPP gets them precisely nothing back.

[Smallc]

If you want to change the system, you're going to have to increase premiums. It's that simple. However, I always thought it was OAS that got clawed back, and not CPP.

Edited April 12, 2011 by Smallc

[msj]

If you want to change the system, you're going to have to increase premiums. It's that simple. However, I always thought it was OAS that got clawed back, and not CPP.

Yep, OAS is clawed back if the income on your tax return at line 234 exceeds about $66,000 ish.

GIS is clawed on income earned except for the OAS (i.e. any income besides OAS is counted and will claw back the GIS).

CPP is not clawed back by the government.

However, some people who receive pensions from the government do see their government pension reduced when they turn 65 and this is done presumably to take into account the fact that they are receiving CPP at that age (even though they may apply for it early).

So, no, their CPP is not being clawed back but the pension they receive from the government is.

[socialist]

Lots of comments on here about the TFSA's. Cdn's weren't saving enough, so Harper came out with this, and by all acct's, it's been a huge success, drawing Cdn's into saving. There's also a lot of false information put out by the Left, like somehow, it'll cost the Gov billions in the distant future. Huh?? Say wha'???? Cdn's get a tax break the year of the deposit. There's no further cost to the Gov down the road when they take out the money. There's misleading articles like this one in the Globe and Fail, that seems to suggest if you don't use up your limit this year, you can transfer it forward, like rsp's, when in fact it's non-cumulative, rendering the entire article false!

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/how-tfsa-expansion-will-hit-future-tax-revenues/article613260/

[Icebound]

...., like somehow, it'll cost the Gov billions in the distant future. Huh?? Say wha'???? Cdn's get a tax break the year of the deposit. There's no further cost to the Gov down the road when they take out the money![/size]

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/how-tfsa-expansion-will-hit-future-tax-revenues/article613260/

So I have $10,000 in a savings account at 1percent.

This year ... And all future years, I would make $100 in interest, and the government would get about $20 in taxes, or so, forever..as long as I had the deposit.

If I put the 10k in TFSA, the govt gets nothing.. For ALL. FUTURE. YEARS.

IF I have $100,000, that can represent a significant tax on the interest going with forward. But with TFSAs, I will have the whole thing sheltered within 10 years... And so, beyond that the govt is getting zero.... Instead of the tax on interest .... Tax that could be about 200 a year forever, even at the lowest interest and tax rates. F O R E V E R.

[socialist]

So I have $10,000 in a savings account at 1percent.

This year ... And all future years, I would make $100 in interest, and the government would get about $20 in taxes, or so, forever..as long as I had the deposit.

If I put the 10k in TFSA, the govt gets nothing.. For ALL. FUTURE. YEARS.

IF I have $100,000, that can represent a significant tax on the interest going with forward. But with TFSAs, I will have the whole thing sheltered within 10 years... And so, beyond that the govt is getting zero.... Instead of the tax on interest .... Tax that could be about 200 a year forever, even at the lowest interest and tax rates. F O R E V E R.

TFSA contributions CAN be carried forward just like RRSP's. What's more if you have existing savings or investments in regular taxable accounts, you can move the eligible amount into a TFSA each year and render those savings non taxable. So you don't have to save the amount you put in each year if you are unable to do so, but you can gradually work your existing savings into non taxable status. Another huge feature is you can take all the funds out tax free and then put that full amount back in as long as it's in the next calendar year. So you never lose your accumulated tax free base amount. Used properly this can benefit virtually anyone with savings of any kind who now pays taxes on their investment income or interest earned. It's a brilliant way for government to encourage Canadians to save for their future needs of any kind. And all the givernment has to do is get out if the way and make sure limits are observed. This responsibility is managed by the financial institutions for the most part, so it's not a costly program to run.

[socialist]

So I have $10,000 in a savings account at 1percent.

This year ... And all future years, I would make $100 in interest, and the government would get about $20 in taxes, or so, forever..as long as I had the deposit.

If I put the 10k in TFSA, the govt gets nothing.. For ALL. FUTURE. YEARS.

IF I have $100,000, that can represent a significant tax on the interest going with forward. But with TFSAs, I will have the whole thing sheltered within 10 years... And so, beyond that the govt is getting zero.... Instead of the tax on interest .... Tax that could be about 200 a year forever, even at the lowest interest and tax rates. F O R E V E R.

Unlike you, I don't want the government to control every aspect of my life. I am no longer a statist.

TFSAs are such a great vehicle for saving. Harper understands the real needs of the majority of savers from all income levels and he knows it's best to get out of your way and let you save your own money tax free. You can then decide what you need to spend it on. The NDP and Libs just don't get it. They think it's best to send all your money to Ottawa and let THEM decide how to spend it for you.

[Icebound]

Unlike you, I don't want the government to control every aspect of my life. I am no longer a statist. [/size]

TFSAs are such a great vehicle for saving. Harper understands the real needs of the majority of savers from all income levels and he knows it's best to get out of your way and let you save your own money tax free. You can then decide what you need to spend it on. The NDP and Libs just don't get it. They think it's best to send all your money to Ottawa and let THEM decide how to spend it for you.[/size]

TFSAs are good for YOU, but only if you have money. It is of no value to those that don't .....you can't save what you don't have.... And the country has to replace the revenue somehow.... Now that I think of, sure, expand TFSAs, and replace the revenue with a VAT.

...

[socialist]

TFSAs are good for YOU, but only if you have money. It is of no value to those that don't .....you can't save what you don't have.... And the country has to replace the revenue somehow.... Now that I think of, sure, expand TFSAs, and replace the revenue with a VAT.

...

Replace the revenue? Less money going to waste in Ottawa and more money in the hands of those who earned and saved it to spend it as they see fit. Sensible hard working Canadians understand this implicitly. It's just common sense which seems to be sorely lacking in the NDP and Lib policies.

[socialist]

TFSAs are good for YOU, but only if you have money. It is of no value to those that don't .....you can't save what you don't have.... And the country has to replace the revenue somehow.... Now that I think of, sure, expand TFSAs, and replace the revenue with a VAT.

...

Somehow, among the left, it has become "normal" to suppose that leaving people with more of their own, hard-earned money is a "loss", or "costly".

It's partly the politics of envy and partly financial illiteracy that brings them to this conclusion.

[August1991]

Lots of comments on here about the TFSA's. Cdn's weren't saving enough, so Harper came out with this, and by all acct's, it's been a huge success, drawing Cdn's into saving. There's also a lot of false information put out by the Left, like somehow, it'll cost the Gov billions in the distant future. Huh?? Say wha'???? Cdn's get a tax break the year of the deposit. There's no further cost to the Gov down the road when they take out the money. There's misleading articles like this one in the Globe and Fail, that seems to suggest if you don't use up your limit this year, you can transfer it forward, like rsp's, when in fact it's non-cumulative, rendering the entire article false![/size]

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/how-tfsa-expansion-will-hit-future-tax-revenues/article613260/

In fact, Harper did not "come out with this". In the US, what English-Canadians call a TFSA is known as a Roth account. In the UK, it is an ISA. (Our English RRSP - French RÉER is, in the US, a 401k.)

.

They all amount to the same thing so Harper/Flaherty really didn't do anything new except make people's decision to save more accurate.

I can't really comment on socialist' opinion about limits and transfers. But I will note the difference between the world of financial paper and the world of bureaucratic paper: An RRSP is unlilke a birth certificate.

====

When people in the street ask me about the difference between a TFSA and a RRSP, I say: "If you're the kind of rational, disciplined person who can refuse chocolate while on a diet, then choose a TFSA. Otherwise, if you're irrationally human, lock your money in a RRSP."

That's the difference.

Edited August 15, 2015 by August1991