Canada: Harper finally does something right: TFSA $10k/year

[GuitarStv]

I don't know of any entitled teachers on picket lines.

[thriftyc]

Regardless of the politics, it's a fantastic wealth building tool!

[sieben]

I'm pretty excited about this and hope to be able to max out my TFSA something at the start of next year. It really bothers me that people are trying to bash the TFSA as a tax-break for the wealthy.
Trudeau just released his budget proposal that included cutting the marginal tax rate for the $44,700 to $89,401 tax bracket. Given my current salary that would help me a bit but not nearly as much as being able to contribute 10K every year to my TFSA. It seems like while simultaneously talking about how the increase to the TFSA limit only helps the rich they are proposing a policy that would cost me more money and instead benefit people who make significantly more than I do. The cutting of the tax rate would also provide zero benefit to my parents who have a very low income but max out their TFSA's due to strong saving habits.
Why are we so intent on attacking people who are trying to save money?

[1967mama]

And if Justin Trudeau is elected, he would like to reduce the TFSA limit ...

http://www.benefitscanada.com/news/politics-could-shrink-tfsa-contribution-room-66097

[PharmaStache]

I'm pretty excited about this and hope to be able to max out my TFSA something at the start of next year. It really bothers me that people are trying to bash the TFSA as a tax-break for the wealthy.
Trudeau just released his budget proposal that included cutting the marginal tax rate for the $44,700 to $89,401 tax bracket. Given my current salary that would help me a bit but not nearly as much as being able to contribute 10K every year to my TFSA. It seems like while simultaneously talking about how the increase to the TFSA limit only helps the rich they are proposing a policy that would cost me more money and instead benefit people who make significantly more than I do. The cutting of the tax rate would also provide zero benefit to my parents who have a very low income but max out their TFSA's due to strong saving habits.
Why are we so intent on attacking people who are trying to save money?

I agree that this does not help the wealthy- they have much more than 10k/year to invest!  The amount of tax they're saving is a drop in the bucket for them.  It's actually kinda sad if people think you need to be wealthy to invest 10k/year…

In my view, it helps people who are middle/upper middle class *and* saving a decent, but not extreme amount of money (say 25% savings rate).  These people would usually max out their RRSPs and then use non-registered accounts for savings.  I can see those people being encouraged to save more due to the TFSA-  wouldn't the government want people to save more for retirement?  I don't care much about an OAS clawback based on TFSA amounts, since who knows what form OAS will exist in 30+ years from now anyway.

[Retire-Canada]

Why are we so intent on attacking people who are trying to save money?

Nobody is attacking us. Not really.

It's politics and if JT wants to get elected he has to dig in on issues that get some traction in the minds of Canadians.

If you want a lot of votes do you court the MMM crowd or the spendypants folks in the middle [and studies show that most people from $20K to $150K/yr incomes think they are middle class] who are confused and think the TFSA is for the rich only?

Reality and politics are not the same thing. But you can't get elected if you only deal with reality.

I'd prefer the larger TFSA room and I'd max it out every year, but I'm not voting based on that single issue.

-- Vik

[fb132]

I think Trudeau wants to capitalize on the ignorants when it comes to the TFSA. I don't understand why he is making it an issue other than taking advantage of people who are clueless about finance. There are other major issues he should go after, the TFSA shouldn't be one.

[GuitarStv]

If most people actually use the TFSA then there's a big revenue shortfall coming . . . Each Canadian will have contribution room of a hundred thousand plus dollars of untaxable money in five years, that will continue to grow each year.  That's a lot of missing tax money from the coffers.  If this tax shelter is used primarily by those with lots of money, then it furthers income inequality.  Those who don't need a subsidy from the government get one, and those who do are ignored.

For me personally, it's great.  For Canada as a whole it's effect several years down the road could be a bit troubling, which is why my support of this is somewhat torn.

[AmbitiousCanuck]

If most people actually use the TFSA then there's a big revenue shortfall coming . . .

I would hazard a guess that at least 50% of Canadians do not use the TFSA, and of the 50% that do, at least 80% of them have one of those awful TFSA savings accounts at the big banks making a laughably bad 0.75% in interest (and therefor, the government is not missing out on much tax since not much money is being made).  I am also the only person I know (IRL) that has maxed out their TFSA.

[fb132]

If most people actually use the TFSA then there's a big revenue shortfall coming . . .

I would hazard a guess that at least 50% of Canadians do not use the TFSA, and of the 50% that do, at least 80% of them have one of those awful TFSA savings accounts at the big banks making a laughably bad 0.75% in interest (and therefor, the government is not missing out on much tax since not much money is being made).  I am also the only person I know (IRL) that has maxed out their TFSA.

I agree with you, alot of coworkers of mine not only don't invest in the TFSA, many of them don't even know what it is. So I am not worried about taxes hurting us in the long haul. We get taxed like crazy, much more than our neighbours in the US, it's nice to have something on our side for once in which we don't get taxed on.

[Retire-Canada]

I agree with you, alot of coworkers of mine not only don't invest in the TFSA, many of them don't even know what it is. So I am not worried about taxes hurting us in the long haul. We get taxed like crazy, much more than our neighbours in the US, it's nice to have something on our side for once in which we don't get taxed on.

I don't think that's true when you consider that you get free [or nearly free] health care in Canada.

http://www.investopedia.com/financial-edge/0411/do-canadians-really-pay-more-taxes-than-americans.aspx

http://www.step.org/canadian-and-us-tax-systems-comparison

http://www.ctvnews.ca/canada/think-canadians-pay-some-of-highest-income-taxes-in-the-world-think-again-1.1771575

-- Vik

[GuitarStv]

If most people actually use the TFSA then there's a big revenue shortfall coming . . .

I would hazard a guess that at least 50% of Canadians do not use the TFSA, and of the 50% that do, at least 80% of them have one of those awful TFSA savings accounts at the big banks making a laughably bad 0.75% in interest (and therefor, the government is not missing out on much tax since not much money is being made).  I am also the only person I know (IRL) that has maxed out their TFSA.

. . . which leads to my other argument.  Most people who are rich have someone handle their investments for them.  Which means as a group, they'll benefit the most from the TFSAs.  That's why I wrote about income inequality in the part of my post that you discarded.

If everyone uses them, they're not great for our tax revenue.  If few people use them, they increase income inequality.  Which one are you pulling for?

[AmbitiousCanuck]

If everyone uses them, they're not great for our tax revenue.  If few people use them, they increase income inequality.  Which one are you pulling for?

I honestly think the TFSA is a much bigger benefit to middle income investors than the rich ones.  Sure, someone with a million dollars of investments is definitely going to take full advantage of the TFSA.... but then its such a tiny amount of their total portfolio its not like its giving them that big of an advantage.  It shouldn't be difficult for most Canadians to max out the TFSA each year, but its their choice not to.

Listen, I am not advocating for income inequality.  By all means, there is a small segment of the population that gets paid WAYYYY too much money.  But the TFSA is not the problem here.  The fact that every Canadian citizen gets the same amount of contribution room makes it a level playing field.  If people chose to not take advantage of it, then that is their own problem.  If you offer someone $10 bucks and they don't take it, are you going to snatch the $10 away from the guy who did take it, just to be "fair"?  If anything, the RRSP is a bigger problem than the TFSA, because it increases based on your income, which means bigger incomes can stash more money and get bigger benefits.

Also, I am tired of everyone assuming that the TFSA will increase by $10000 a year for eternity, therefore becoming some massive tax haven for the rich.  No, clearly that is not going to happen, some time in the future the government will stop or greatly reduce the increases, likely before it gets out of hand.

[sleepyguy]

I agree with everything you said but RRSP does have a cap limit.

Maximum Annual RRSP Contribution Limits

Year   Contribution limit
2011   $22,450
2012   $22,970
2013   $23,820
2014   $24,270
2015   $24,930

So really the very wealthy honestly don't care much about RRSP or TSFA.

If everyone uses them, they're not great for our tax revenue.  If few people use them, they increase income inequality.  Which one are you pulling for?

I honestly think the TFSA is a much bigger benefit to middle income investors than the rich ones.  Sure, someone with a million dollars of investments is definitely going to take full advantage of the TFSA.... but then its such a tiny amount of their total portfolio its not like its giving them that big of an advantage.  It shouldn't be difficult for most Canadians to max out the TFSA each year, but its their choice not to.

Listen, I am not advocating for income inequality.  By all means, there is a small segment of the population that gets paid WAYYYY too much money.  But the TFSA is not the problem here.  The fact that every Canadian citizen gets the same amount of contribution room makes it a level playing field.  If people chose to not take advantage of it, then that is their own problem.  If you offer someone $10 bucks and they don't take it, are you going to snatch the $10 away from the guy who did take it, just to be "fair"?  If anything, the RRSP is a bigger problem than the TFSA, because it increases based on your income, which means bigger incomes can stash more money and get bigger benefits.

Also, I am tired of everyone assuming that the TFSA will increase by $10000 a year for eternity, therefore becoming some massive tax haven for the rich.  No, clearly that is not going to happen, some time in the future the government will stop or greatly reduce the increases, likely before it gets out of hand.

[AmbitiousCanuck]

I agree with everything you said but RRSP does have a cap limit.

You are correct, it is more of a problem between the various middle class income levels I suppose.

[Sarnia Saver]

I don't think that's true when you consider that you get free [or nearly free] health care in Canada.

If you want to see how expensive something can be, start offering it for 'free' to the masses.

[MLKnits]

If you want to see how expensive something can be, start offering it for 'free' to the masses.

And yet we pay much less per person for hugely better health outcomes (longevity, infant mortality, etc) than our privatized neighbour to the south.

How about, if you want to see how expensive something can be, make sure there's an enormous privatized bureaucracy attached to it, soaking up every possible penny until you're left with the highest healthcare costs and nearly the worst healthcare outcomes in the industrialized world ... (slightly better these days, of course, though still pretty damned inefficient).

[Retire-Canada]

And yet we pay much less per person for hugely better health outcomes (longevity, infant mortality, etc) than our privatized neighbour to the south.

How about, if you want to see how expensive something can be, make sure there's an enormous privatized bureaucracy attached to it, soaking up every possible penny until you're left with the highest healthcare costs and nearly the worst healthcare outcomes in the industrialized world ... (slightly better these days, of course, though still pretty damned inefficient).

The bargaining power of a single buyer in a country is an immense savings opportunity.

Estimates are we could save billions off our health care costs if we instituted a national pharma care plan. I'd be all for that.

[Retire-Canada]

On the topic of the expanded TFSA contribution room. I've been plugging away at it and I'm just $1.5K away from using it all up. One more month and I'll be topped up.

I hope Harper loses, but I figure no matter who gets in anyone who got their money before another change happens will not see any roll backs.

[RichMoose]

On the topic of the expanded TFSA contribution room. I've been plugging away at it and I'm just $1.5K away from using it all up. One more month and I'll be topped up.

I hope Harper loses, but I figure no matter who gets in anyone who got their money before another change happens will not see any roll backs.

Awesome!

[PharmaStache]

If a party other than the conservatives win in October (and it's a party that has made it known they will reduce the TFSA amount), when will we actually find out that the TFSA amount is rolled back?  Would they make it official in Nov or Dec, or could there be uncertainty Jan 1 as to how much you can actually contribute that year? 

[RichMoose]

If a party other than the conservatives win in October (and it's a party that has made it known they will reduce the TFSA amount), when will we actually find out that the TFSA amount is rolled back?  Would they make it official in Nov or Dec, or could there be uncertainty Jan 1 as to how much you can actually contribute that year?

My best guess is they won't roll back for 2015. If anything they will set a new rate once next years budget comes out in the spring. If it's a majority government, they will likely indicate where the 2016 TFSA limit will be by January.

[Kaspian]

I hope Harper loses, but I figure no matter who gets in anyone who got their money before another change happens will not see any roll backs.

Me too!  (Hope he loses.)  But this is a difficult election because the economic platforms of the others don't make much sense and involve such pandering.  "We need to reduce the TFSA because there is no way the average Canadian can save $10,000 a year!  It only benefits the rich!"  Me:  "Ummm..  Really rich people don't care much about $10K.  It's not even a drop in their bucket."  The best tax shelter the average Canadian has ever had and people want to reduce it?   Is that like one of those schoolyard things where the kid goes, "If I can't use it, nobody's allowed to"?

[fb132]

I hope Harper loses, but I figure no matter who gets in anyone who got their money before another change happens will not see any roll backs.

Me too!  (Hope he loses.)  But this is a difficult election because the economic platforms of the others don't make much sense and involve such pandering.  "We need to reduce the TFSA because there is no way the average Canadian can save $10,000 a year!  It only benefits the rich!"  Me:  "Ummm..  Really rich people don't care much about $10K.  It's not even a drop in their bucket."  The best tax shelter the average Canadian has ever had and people want to reduce it?   Is that like one of those schoolyard things where the kid goes, "If I can't use it, nobody's allowed to"?

Actually that was Trudeau who said it, I found it so stupid. The only one I won't vote for sure is Bloc Québécois, I just find that they will screw the NDP and that would help out the conservatives in Quebec. I know NDP were not happy about the TFSA changes, but I don't recall them saying anything as stupid as Trudeau on that one. The only thing I recall Mulcair saying about it is that it would hurt in the long run when it comes to funding for programs since the tfsa takes away some tax money which is at least a more reasonable answer than Justin Trudeau.

On one hand you have the conservative who really have knack on hiring people (I am being sarcastic of course, just see Brazeau, Duffy, Pamela Wallin, etc...)...on the other hand you have Justin Trudeau who will say anything to win votes for the low income families and then you have the NDP who have alot of inexperienced people, a party that has never governed the country.

[tj]

I'm almost maxed for TFSA. Will be completely by year end. What this means for me is I should never have to have any taxable accounts. I never get why people, even when getting low interest rates in a savings account aren't using the TFSA. Unless you're going to removing money frequently why have any taxable accounts at all?

How do you guys fund unexpected disasters up north without using taxable accounts? I put as much as I can in my IRA (which is well under 10% of my income.), so the rest has to go somewhere.

[Retire-Canada]

How do you guys fund unexpected disasters up north without using taxable accounts? I put as much as I can in my IRA (which is well under 10% of my income.), so the rest has to go somewhere.

You can take $$ out of a TFSA any time with no penalties. You can return then $$ back to it the next calendar year.

Having said that if I had an unexpected emergency I would not touch any of my investments unless there was no other way to deal with it. My high savings rate and line of credit are my first line of defence.

[Kaspian]

I'm almost maxed for TFSA. Will be completely by year end. What this means for me is I should never have to have any taxable accounts. I never get why people, even when getting low interest rates in a savings account aren't using the TFSA. Unless you're going to removing money frequently why have any taxable accounts at all?

How do you guys fund unexpected disasters up north without using taxable accounts? I put as much as I can in my IRA (which is well under 10% of my income.), so the rest has to go somewhere.

I'm one of the dummies that keeps an emergency fund despite what MMM says about it.  :)  $5K in there.  I wouldn't touch my tax shelters if I needed a larger sum, I'd take out of my non-registered account and (I guess) pay the piper for capital gains at tax time.  Paying capital gains isn't too bad--you only pay income tax on half the profit. 

[Retire-Canada]

I'm one of the dummies that keeps an emergency fund despite what MMM says about it.  :)  $5K in there.  I wouldn't touch my tax shelters if I needed a larger sum, I'd take out of my non-registered account and (I guess) pay the piper for capital gains at tax time.  Paying capital gains isn't too bad--you only pay income tax on half the profit.

I'd run the math on taking say $25K out of your TFSA for an emergency and paying it back vs. doing that on a non-reg account where you'll pay CG taxes.

The TFSA $$ can be re-contributed the next calendar year so you are only losing the potential returns while you pay back the money. With the non-reg accounts you lose the potential returns and you pay CG taxes.

One scenario where taking money out of non-reg would make sense if you wanted to do some loss harvesting from investments that tanked and offset CGs on investments that appreciated.

[Kaspian]

I'm one of the dummies that keeps an emergency fund despite what MMM says about it.  :)  $5K in there.  I wouldn't touch my tax shelters if I needed a larger sum, I'd take out of my non-registered account and (I guess) pay the piper for capital gains at tax time.  Paying capital gains isn't too bad--you only pay income tax on half the profit.

I'd run the math on taking say $25K out of your TFSA for an emergency and paying it back vs. doing that on a non-reg account where you'll pay CG taxes.

The TFSA $$ can be re-contributed the next calendar year so you are only losing the potential returns while you pay back the money. With the non-reg accounts you lose the potential returns and you pay CG taxes.

One scenario where taking money out of non-reg would make sense if you wanted to do some loss harvesting from investments that tanked and offset CGs on investments that appreciated.

Luckily, it hasn't happened yet and on second thought, I think you're right.  Even if worse came to worse and it was say, $30K.  If I couldn't pay that back, I could even (in the next year) pay a bit of capital gains while flipping $30K of high dividend investments from my non-registered into the TFSA.  I don't have much shelter room because I have a pension at work.  So, I only get about $3200 a year RRSP space and the TFSA.  As a Mustachian, it's pretty easy to fill up $13K in no time.  That's why I have the non-registered.

[BrandonP]

It's great news, but haven't the opposition parties said they stop the move if they were elected?

With elections later this year, I'm not very much counting on it. Although we might get a year of increased TFSA contributions, at least. One of the few fiscal moves that would actually benefit me, it would suck to see it go down the drain.

It looks like we will find out very soon. Fingers crossed it stays at $10,000.