Attention investors, the pain train is about to hit-Monday

[ahramin]

If you take money out of a TFSA to invest you will get taxed on any return. Interest is only tax free while the funds are in the account.

Beef, you invest the money in the TFSA. There would be no point in taking the money out and investing it unless you were planning on losing money as a gains writeoff.

Mine is over 18k now.

[Beefitarian]

Someone a page back is hoping to earn a couple hundred thousand dollars in savings account interest or something.

[ahramin]

Someone a page back is hoping to earn a couple hundred thousand dollars in savings account interest or something.

Interest? Interest rates are at a record low. That's great for the majority of Canadians who are buried in debt, but it doesn't help those of us who have an assets - liabilities in the black situation. I haven't seen TFSA interest rates above 1.5%, which for me isn't a good return. Far better off with some form of investment, even if it's just a bond fund or something similarly low risk. I don't go for the high risk stuff, especially in my TFSA, but as ragbag says, if you buy 1000 shares at $20 a share and they go to $200 a share and you sell, you have $180 000 tax free plus the $20 000 you already paid taxes on.

My TFSA is in Quebec windmills and BC Sugar

How are dividends handled; can you still claim the tax credit?

Dividends go into the TFSA and are tax free. You can pull them out at any time but you can't put the cash back in until the following year (if you are at your contribution limit, which you should be). You cannot claim the tax credit.

[ragbagflyer]

Someone a page back is hoping to earn a couple hundred thousand dollars in savings account interest or something.

Beef, I don't think you know how a TFSA works. I didn't either until a couple months ago. It's not your regular savings account. It really should be named a tax free investment account. You can use them as a regular trading account but you can't trade on margin. If I take the 15k in my account and buy stock in Canaco for example, and the stock shoots up to 6 bucks, now I have 45k in my account. No capital gains tax, no tax on withdrawals. Gravy.

[ragbagflyer]

Beat me to it Ahramin.

And like I said, even if you don't have the 15 grand, if you can borrow at a low rate to top up your tfsa, do it. Assuming the markets don't tank further you should be able to easily generate a positive return over the next six months. You can be as risky or conservative as you want. Does anybody know if you can write off the interest you pay on monies borrowed to invest in a tfsa like you can with a regular investment account?

[Beefitarian]

Someone a page back is hoping to earn a couple hundred thousand dollars in savings account interest or something.

Beef, I don't think you know how a TFSA works. I didn't either until a couple months ago. It really should be named a tax free investment account.

The bank didn't know how they worked when I opened it. There's also differing opinions on how much I can deposit. Some said it depends on when it was opened others say you have to make all the deposits year by year to increase the deposit total.

The name is confusing. I guess that's government.

[azimuthaviation]

Someone a page back is hoping to earn a couple hundred thousand dollars in savings account interest or something.

Beef, I don't think you know how a TFSA works. I didn't either until a couple months ago. It's not your regular savings account. It really should be named a tax free investment account. You can use them as a regular trading account but you can't trade on margin. If I take the 15k in my account and buy stock in Canaco for example, and the stock shoots up to 6 bucks, now I have 45k in my account. No capital gains tax, no tax on withdrawals. Gravy.

And you know people whove had it work out like that?

[TG]

Incorrect. Funds withdrawn can only be replaced next calendar year. The current contribution limit for someone new to TFSAs is $15 000.

Anyone putting money in RRSPs without having their TFSA contribution maxed is either expecting a layoff or needs to learn math.

Exactly' and I wish I would have picked up on it before getting caught!


Be careful with TFSA, I wasn't aware about the "exact rules" and got fined 450$
I had it maxed out, retired 5000, realized I didn't need the money and put it back 4 days later thinking:
"I won't be above the max allowed since it will be the same total into the account at the end"

Wrong!
Taxman has it all figured out for me and sent me a letter stating that I ended up 45,000 above (forty five thousands)
While I wished I had this amount of money dangling around, it took me a little while to figure out what they were talking about and how they could come up with this 45K number since my account was showing 15K.

Guilty subject was 5K put back into my TFSA account, multiplied it by 9 (months) and fined 1% out of it.
5 X 9 = 45000
45000 X 1% = 450
Basically taking away all the mere interests I have made on it.

Thanks!


I know, I'll read the fine prints next

[ahramin]

TG, is this recent? When the TFSA first came out this was a common problem and most people were forgiven the fines because CRA admitted that the rules were confusing. Have you tried to negotiate that number down?

[TG]

Recent yes, and I went through "my reputable" accountant to help me out.
He came up with:

I think I have it figured out. The strict rule is that one cannot contribute more than $5,000 per year.
Please note that if your bank advised you that you were allowed to withdraw and re-contribute in April I would consider them liable for the $450 fine, as they were in error.

Two more emails later (I was busy in the field at the time) charged me 282$ for his time on it studying TFSA rules for me and to be able to give this dumb answer

Of course my bank didn't supply any wrong advices, that was me assuming things wrong.
So I quickly removed the guilty 5K and just paid the fine.



I should have started a topic here in Avcanada instead...

[Beefitarian]

Recent yes, and I went through "my reputable" accountant to help me out.
He came up with:

I think I have it figured out. The strict rule is that one cannot contribute more than $5,000 per year.

There are some saying it's cumulative. I think the person who told me that is wrong, if I miss this years deposit I don't think I can put 10 in next year.

[AuxBatOn]

Recent yes, and I went through "my reputable" accountant to help me out.
He came up with:

I think I have it figured out. The strict rule is that one cannot contribute more than $5,000 per year.

There are some saying it's cumulative. I think the person who told me that is wrong, if I miss this years deposit I don't think I can put 10 in next year.

Yes you can.

[YYZSaabGuy]

AuxBatOn is correct. A quick Google search turned up the following from the North Shore Credit Union website (also confirmed with a couple of others):

"Starting in 2009, everyone who is at least 18 years old will begin to accumulate $5,000 of TFSA contribution room. This will be cumulative and will be carried forward indefinitely. Unlike the RRSP system, any amount withdrawn from your TFSA in a particular year will be automatically added to your TFSA contribution room for the following year, allowing you to withdraw TFSA funds to re-contribute an equivalent amount in a future year. As with RRSPs, any excess contributions beyond your limit will be taxed at 1% per month."

[ahramin]

It's an extremely simple formula.

Your contribution limit is equal to your contribution limit from last year, plus any withdrawals last year, plus 5000 for the current year. So for someone who has never put anything in, your limit is $10 000 from last year + $0 withdrawals + $5000 for this year = $15 000.

If I emptied out my TFSA this year I would not be able to put anything back in until next year because I already put in my contribution limit of $5000 on Jan 1. Next year on Jan 1 I could put in $23k.

People get screwed up because they are scared of math and instead of looking at the 1 line formula, they read the 3 paragraph explanation and find it complicated. As I once said to a KBA ground school instructor: "Your simplified explanation is confusing the hell out me"

[ahramin]

Recent yes, and I went through "my reputable" accountant to help me out.
He came up with:

I think I have it figured out. The strict rule is that one cannot contribute more than $5,000 per year.
Please note that if your bank advised you that you were allowed to withdraw and re-contribute in April I would consider them liable for the $450 fine, as they were in error.

Two more emails later (I was busy in the field at the time) charged me 282$ for his time on it studying TFSA rules for me and to be able to give this dumb answer

Of course my bank didn't supply any wrong advices, that was me assuming things wrong.
So I quickly removed the guilty 5K and just paid the fine.



I should have started a topic here in Avcanada instead...

I'd fire your accountant. $282 to research tax rules he should already know? Does he charge all his clients research fees every time the tax laws change as well? I guess I should start charging my clients an extra hour here and there every time ICAO phraseology changes.

As for removing the guilty 5k, what did that do for you? You have to pay the fine anyway, might as well leave it in there no?

[Beefitarian]

How are you guys buying and selling stocks with the account?

[ahramin]

Same way you buy and sell stocks in any account. Beef, you need to go to the bank and have them open a TFSA trading account, then have them transfer your TFSA with the cash into the TFSA trading account. Some banks call it a TFISA (Investment). It looks just like any other trading account but it's under the TFSA rules. Best to go with the same bank you have your regular or RRSP trading accounts with to try to keep the commission down. I pay $9.99 a trade.

[Beefitarian]

If I open this second account does it start from $5000 or is it tethered to the first one I opened years ago?

[ahramin]

Your total contribution to TFSAs is as per the formula above. If you already have $5000 currently in a TFSA then your limit for the new account is $10 000.

[Beefitarian]

Ok, I don't think I can afford to put in my max since I opened the account the year they came out. I may need to open the trading account at a seperate bank. I probably should deposit to the first account before I do that so I can use the maximum that's accumulated.

What's everyone's opinion on the best bank to have a trading account with. I have RRSP with servus, not happy with them and RBC much happier with them but I'm ok with opening one at TD or where ever if they're better/cheaper.

I should charge people to know what stocks I'm about to buy so they can short them and make money.