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Last Post:
Nov 9, 2009 3:24 PM
Last Post By: yk0713
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44
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11/21/09
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TFSA account theory
Posted:
Nov 2, 2009 6:55 PM
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hi,
I heard that TFSA is tax free account. For instance, I make $60,000 using $10,000 in TFSA account.
So I get $50,000 capital gain and this is tax free and not an income.
What if I make $120,000 from that $60,000. The capital gain is now $110,000 from $10,000 in the original amount.
Is it still a tax free all the way.??
thank you
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Posts:
1,290
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Re: TFSA account theory
Posted:
Nov 2, 2009 7:04 PM
in response to: yk0713
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Yes. But if you know how to turn $10K into $120K in a short period of time, then TFSA rules should not concern you. You could afford an accountant.
Edited by: toolbox on Nov 2, 2009 7:05 PM
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Posts:
44
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Re: TFSA account theory
Posted:
Nov 2, 2009 9:41 PM
in response to: yk0713
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Let us know how you make out in turning that $10K into $120K, will you.
Keep us posted.
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Posts:
255
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11/21/09
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Re: TFSA account theory
Posted:
Nov 2, 2009 11:58 PM
in response to: toolbox
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Yes. But if you know how to turn $10K into $120K in a short period of time, then TFSA rules should not concern you. You could afford an accountant.
Lol, too funny.
OP, read up on TFSAs there is plenty of info out there... starting with the $5000 per year part.
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1,290
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Re: TFSA account theory
Posted:
Nov 3, 2009 7:42 PM
in response to: yk0713
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Ignoring the hypothetical rates of return used in his example, yk0713 does illustrate the long-term problem with TFSAs from a socio-economic policy perspective. This program is being sold to the public as a means for the average Joe/Jill to save a little nest egg without having it taxed to death by government. But in fact over time it will allow upper income people to accumulate quite a substantial pile of assets in tax-free accounts. Some future government is going to have to revisit the lack of caps on these accounts, and naturally there will be a lot of kicking & screaming (translating into political foot-dragging) about changing them retroactively. When anyone with half a brain could have predicted this beneficial effect for the affluent. (But then maybe that was the hidden agenda all along?)
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Posts:
45
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11/21/09
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Re: TFSA account theory
Posted:
Nov 4, 2009 1:10 PM
in response to: toolbox
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"Some future government is going to have to revisit the lack of caps on these accounts,"
The $5000 annual investment limit is the cap.
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792
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Re: TFSA account theory
Posted:
Nov 4, 2009 3:59 PM
in response to: auggie
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"The $5000 annual investment limit is the cap"
That's just it. Since it is an annual limit but accumulative, it ensured that it would be a non-event for as long as the Tories were in power. Perhaps might even help them for an election or two, however the real problem with it, and there will be problems as the assets accumulate, will become the problem of some other government. That is irresponsible government if you ask me.
Sure, as a taxpayer it sounds nice, but lets face it; taxes have to come from somewhere. Right now a lot of it comes from taxes on un-sheltered money. As this money gets sheltered, some future government will have the unpleasant job of taking it away or implement a new tax to these very same people the Tories say they are helping ... or worse, simply run a larger deficit.
My guess is, they will choose the later. Oh well, I have no kids, why should I care. I guess I should be happy about deficits since it makes someone else's kids pay our taxes.
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Re: TFSA account theory
Posted:
Nov 4, 2009 4:08 PM
in response to: optsyeagle
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OK.... move on folks. There is no tax revenue being lost here. You must realize that when you plunk money into your TFSA instead of contributing to your RRSP, you are walking away from that tax deduction. Over time, the TFSA and the RRSP are pretty much a wash.
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792
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Re: TFSA account theory
Posted:
Nov 4, 2009 4:54 PM
in response to: steves
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"plunk money into your TFSA instead of contributing to your RRSP"
Why do you think that the rich are not going to do both. Heck, I do both and I'm not even rich.
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Re: TFSA account theory
Posted:
Nov 4, 2009 5:54 PM
in response to: optsyeagle
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The benefit for lower income earners is that in many cases the tax break on an RRSP is negligible for them as they are in a lower tax bracket. The TFSA allows them to save in a tax free environment even when they don't earn enough to make an RRSP worthwhile. I would gladly give up the RRSP if I was allowed to put the same amount away in a TFSA.
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Posts:
2,213
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Re: TFSA account theory
Posted:
Nov 4, 2009 6:03 PM
in response to: optsyeagle
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If you compare the TFSA to an RRSP at a 30% marginal tax rate now, and a 20% or 30% marginal tax rate at retirement.
Total return in the TFSA of 100% (double your money in the retirement plan over X years)
RRSP scenario
So $7140 in pre tax income into your RRSP, doubles to $14280 at retirement, you're taxed $2856 (20%) leaving you with $11 424. (At 30% it's $4284 tax and $9996)
For the TFSA you pay $2140 tax now, your $5k doubles to $10k and you're left with $10k.
In short if you're at the same tax rate both times, the government gets the SAME money (adjusted for your rate of return).
If you get a lower marginal tax rate at retirement, the government gets LESS.
Overall it's basically the same money and the government isn't really out anything between the two plans.
You can play with tax rates, relative rates of return etc to get whatever result you want.
At the end of the day, the removal of taxes from the compound return is really good for the saver.
The plans are already capped, and I'd argue the TFSA is much more beneficial to lower wealth people than an RRSP.
The limit isn't gauged on income so people with irregular incomes etc aren't limited by their "bad years". I know people who have been unemployed for 6+ months, they lost RRSP room, but not TFSA room.
The tax treatment is simple, people who are less financially sophisticated and don't have accountants can understand it, unlike RRSP rules which they find confusing.
The money is more accessible, low wealth individuals often withdraw from their RRSPs which destroys contribution room. TFSA allows that.
I really think the TFSA is a good tool that most benefits lower-middle/middle wealth individuals.
The benefits for wealthier people are there, but the limits make relatively less valuable.
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Re: TFSA account theory -Toolbox
Posted:
Nov 4, 2009 7:47 PM
in response to: toolbox
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The wealthy have paid Taxes, top bracket probably, on the $5000, so after 2049, with 200,000 contributed in the 40 years, and $80,000 taxes paid, their money will be worth about 50,000 in today,s $. How is that not a leveling of the playing field?? Glad I am not rich, and won't last 40 years. Interesting scenario. Another scam to placate the burdened taxpayer.
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105
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Re: TFSA account theory
Posted:
Nov 4, 2009 9:28 PM
in response to: yk0713
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The TFSA works for me. Along with my RRSP, a nice addition to my retirement portfolio. I don't see the political conspiracy, the scam for taxpayers etc. I pay enough taxes thank you, will take advantage of a legal break anytime.
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Posts:
255
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11/21/09
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Re: TFSA account theory
Posted:
Nov 5, 2009 12:37 AM
in response to: jivin
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While the $5000 annual cap wasn't the cap Toolbox was talking about it is sufficient to control the program. The TFSA is hardly a money shelter for the rich, or scam, or bad plan. In a word it is brilliant. A better deal for the low income people, less hassle than virtually any other government program ever implemented, and yes even a few bucks saved in taxes for the rich guy or gal down the road. You do need to keep in mind that a few grand doesn't make much difference to a millionaire. Sure in fifty years it may amount to something, but the downsides are bested by the benefits. One thing missed in this thread is the whole idea for the program... for the individual to save some cash so he or she (and her six kids) don't have to live off the the government tax pool. Also, every program will be abused. Now to keep the divided dimwits out of office so the good programs don't get scrapped or butchered.
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Posts:
44
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11/21/09
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Re: TFSA account theory
Posted:
Nov 8, 2009 8:08 PM
in response to: snowbird
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hi there,
I'm sorry man.. I say for example., I didn't mean it ;
thanks.;;
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