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Is there a guaranteed capital gain product that is not in TFSA or RRSP?
January 16, 2023
11:48 am
butterflycharm
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Norman1 said
Second hand GIC's and government bonds are available through investment dealers.

Canadian government bonds are usually only available second hand through investment dealers and not issued directly to the general public. Federal government, for example, cancelled its Canada Savings Bond program years ago. The Ontario government also cancelled its Ontario Savings Bond program.

The terms and conditions of bonds and GIC's are fixed when they are issued. A Government of Canada 8% bond issued 30 years ago will continue to pay 8% of its face value each year until it matures. Only thing that changes is the bond's trading price.  

And the trading price can still be a loss so it is important.

Example of investment dealers that sell second hand GICs? and example of prices you have seen? Assuming GIC is sold at a lower rate that it is maturity value?!

January 16, 2023
5:39 pm
Norman1
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Trading price doesn't matter. On maturity, Government of Canada or whoever the bond issuer is will redeem the bond at its face value.

If one is interested in second hand GIC's, let your full-service investment broker know. The broker will call should another client want out of a GIC early. The full service investment dealers are dealers like CIBC Wood Gundy, BMO Nesbitt Burns, and RBC Dominion Securities.

The broker can also answer questions about how the yield-to-maturity calculation is done to arrive at the price of the GIC.

January 17, 2023
10:55 am
butterflycharm
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Norman1 said
Trading price doesn't matter. On maturity, Government of Canada or whoever the bond issuer is will redeem the bond at its face value.

If one is interested in second hand GIC's, let your full-service investment broker know. The broker will call should another client want out of a GIC early. The full service investment dealers are dealers like CIBC Wood Gundy, BMO Nesbitt Burns, and RBC Dominion Securities.

The broker can also answer questions about how the yield-to-maturity calculation is done to arrive at the price of the GIC.  

Do the parties that want to get out of a GICs take a hit usually that makes it more profitable for the buyer than to buy a brand new GIC? If not, what is the incentive for anyone to buy second hand GIC?

January 17, 2023
11:13 am
HermanH
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Norman1 said
There's no risk to original investment when buying a Government of Canada bond or a GIC second hand at a discount to face value because its rate is below current market rates. The bond or GIC will mature and pay face value along the original interest.  

Would there be an advantage to buying a second-hand GIC at a discount price to be placed into a TFSA? When it matures at full value, would the difference between discount price and value at maturity be added to the contribution room of the TFSA? I would think so, the same way that all the accrued interest increases TFSA contribution room. Is this a potential method of increasing TFSA contribution level?

January 17, 2023
12:47 pm
Bill
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Any increases or decreases in value of investments inside a TFSA impact nothing, including no impact on contribution room. You'd have to elaborate on what you mean about accrued interest increasing contribution room, example?

January 17, 2023
2:15 pm
butterflycharm
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Bill said
Any increases or decreases in value of investments inside a TFSA impact nothing, including no impact on contribution room. You'd have to elaborate on what you mean about accrued interest increasing contribution room, example?  

Above about contribution room is incorrect.

Any gains inside a TFSA (whether from trading, a GIC, or whatever other source allowed) do add to the *overall* TFSA account contribution. If you put $1000 in GIC at 10% rate inside TFSA, then you have raised your TFSA to $1100 effectively for ever (until laws change). You can also still add the full contribution that government allows next year on *top of this. Maybe someone there with a million dollar in TFSA now and all tax free because of these strategies. Not sure if true but probably there is some with few hundred thousands given TFSA room since inception is now ~$88k.

So gain interest, cash out, and *recontribute the full amount with the interest gained again next plus any new contribution room that gov allows. Repeat as many times as you want or keep inside TFSA without ever cashing out and stay tax free. This applies either way.

But all of this is not something new or related to second hand GICs. So it can be a good or bad strategy. The question of contribution room is different from if GIC is a higher income investment vs trading or any other product for example.

January 17, 2023
3:19 pm
Bill
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butterflycharm, whether your $1000 contribution inside your TFSA goes to $1100 as you say, or $111,000, or $0, your next year's contribution room is unaffected.

January 17, 2023
4:40 pm
butterflycharm
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Bill said
butterflycharm, whether your $1000 contribution inside your TFSA goes to $1100 as you say, or $111,000, or $0, your next year's contribution room is unaffected.  

Hermanh asked a specific question:

"When it matures at full value, would the difference between discount price and value at maturity be added to the contribution room of the TFSA?"

He did not say the *next year's* contribution room or the *next years gov determined contribution* room. His question is clear to me. To a user a TOTAL room is the contribution room no matter how broken it is. I also think he knows the extra contribution room each year is just extra determined by gov and same for everyone no matter what.

January 17, 2023
4:51 pm
HermanH
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Bill said
Any increases or decreases in value of investments inside a TFSA impact nothing, including no impact on contribution room. You'd have to elaborate on what you mean about accrued interest increasing contribution room, example?  

Does this work:
2023 contribution room is $6500
If one buys a second-hand GIC (that is set to pay out $10K at maturity in one year) for $6500 and places that GIC within the TFSA, does that mean that the TFSA contribution maximum is now $10K in 2024? (This assumes the TFSA starts at zero and ignores any other TFSA contributions.)

January 17, 2023
6:37 pm
Bill
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HermanH, the 2024 contribution room will be $6500 (assuming inflation indexing hasn't increased it to $7000), as I said what happens to the previous $6500 contribution GIC value or redemption inside the TFSA has no impact on future contribution room.

This link might help, Example 1 in particular might clarify.........
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html

January 17, 2023
6:58 pm
HermanH
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Example 1 does not answer my question. However, I can try to use it as a basis for my ongoing question. The example states:

Brayden was eager to open his TFSA, but he didn’t turn 18 until December 21, 2021. On January 4, 2022, he opened a TFSA and contributed $12,000 ($6,000 for 2021 plus $6,000 for 2022 – the maximum TFSA dollar limits for those years). On the advice of his broker, he had opened a self-directed TFSA and invested in stocks that increased in value. By the end of 2022, the value in Brayden’s TFSA had increased to $12,800. Brayden was worried that for 2023, he would only be able to contribute $5,700 (the TFSA dollar limit of $6,500 for 2023 less the $800 increase in value in his TFSA through 2022). Neither the earnings produced in the account nor the increase in its value will reduce the TFSA contribution room in the following years, so Brayden can contribute up to $6,500 in 2023 to his TFSA.

Assuming I am Brayden, I purchase a second-hand bond on January 4, 2022 at significant discount for $12,000 and place it within the TFSA. This bond will mature on December 30, 2022 for $20,000.

The total value for my TFSA is now $20,000. If this amount is withdrawn on December 31, 2022, it can be re-deposited in the TFSA along with the 2023 annual contribution room of $6,500 for a total of $26,500 on January 1, 2023.

Is this correct?

January 17, 2023
7:17 pm
butterflycharm
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HermanH said
Example 1 does not answer my question. However, I can try to use it as a basis for my ongoing question. The example states:

Brayden was eager to open his TFSA, but he didn’t turn 18 until December 21, 2021. On January 4, 2022, he opened a TFSA and contributed $12,000 ($6,000 for 2021 plus $6,000 for 2022 – the maximum TFSA dollar limits for those years). On the advice of his broker, he had opened a self-directed TFSA and invested in stocks that increased in value. By the end of 2022, the value in Brayden’s TFSA had increased to $12,800. Brayden was worried that for 2023, he would only be able to contribute $5,700 (the TFSA dollar limit of $6,500 for 2023 less the $800 increase in value in his TFSA through 2022). Neither the earnings produced in the account nor the increase in its value will reduce the TFSA contribution room in the following years, so Brayden can contribute up to $6,500 in 2023 to his TFSA.

Assuming I am Brayden, I purchase a second-hand bond on January 4, 2022 at significant discount for $12,000 and place it within the TFSA. This bond will mature on December 30, 2022 for $20,000.

The total value for my TFSA is now $20,000. If this amount is withdrawn on December 31, 2022, it can be re-deposited in the TFSA along with the 2023 annual contribution room of $6,500 for a total of $26,500 on January 1, 2023.

Is this correct?  

Yes, that is exactly how TFSA works. It keeps increasing. Never decreases. And capital gain increases are added to the contribution room. Do a search for "million dollar TFSA". Not saying someone has a million dollar TFSA but it is allowed under the TFSA rules without any penalties. There is NO OTHER WAY for a person to increase the TFSA contribution room (more than what gov year increases annually) other than capital gains (like GICs, trading, etc...inside TFSA).

January 17, 2023
7:33 pm
Bill
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Yes, HermanH, any amount withdrawn from a TFSA is added to next year's contribution room. It's irrelevant how that amount came about, or whether or not there was a gain or loss while in the TFSA, it's just the basic rule.

Anything that happens while still in the TFSA has no impact on anything.

January 17, 2023
9:02 pm
chamnic
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butterflycharm said

Yes, that is exactly how TFSA works. It keeps increasing. Never decreases. And capital gain increases are added to the contribution room. Do a search for "million dollar TFSA". Not saying someone has a million dollar TFSA but it is allowed under the TFSA rules without any penalties. There is NO OTHER WAY for a person to increase the TFSA contribution room (more than what gov year increases annually) other than capital gains (like GICs, trading, etc...inside TFSA).  

Butterflycharm, you are confusing "contribution room" with the total value of your TFSA which varies with capital gain (or loss), accrued interest and so on. They're not the same thing. Contribution room is the amount available that you can add to your TFSA without penalty. It increases every year by 6500$ (since 2023) and can also increase if you withdraw some money from your TFSA.

So Capital gain are not added to your contribution room, they increase the value of your TFSA holdings.

See here for a "contribution room" calculator
https://www.ratehub.ca/investing/tfsa-contribution-room-calculator

January 17, 2023
9:34 pm
mordko
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Yes, unless you withdraw. Then capital gain (or loss) and interest can become contribution room.

Say, we have two mature adults. One never used TFSA. His contribution room is 88k. The other one invested and then withdrew total balance of 160K in 2022. His contribution room is almost double at $166.5K.

January 18, 2023
5:55 am
TommyT
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Bill said
Yes, HermanH, any amount withdrawn from a TFSA is added to next year's contribution room. It's irrelevant how that amount came about, or whether or not there was a gain or loss while in the TFSA, it's just the basic rule.

Anything that happens while still in the TFSA has no impact on anything.  

You have to open a "My Account" online and its when the the money shows up under TFSA room not at the start of next year if you're already at the limit. If you put money that you took out of a TFSA into a TFSA in January the next year chances are you'll get hit with a penalty. It's when the financial institution contacts Revenue Canada and then when it show up under TFSA room which can take upwards of one year. If you fight this you'll lose in court.

January 18, 2023
5:55 am
savemoresaveoften
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Contribution room is fixed each year (2023 being $6500), its standard for everyone.

You can withdraw whatever amount you already have in your TFSA. You can put that same amount back (0-100% what u withdraw) in any future calendar year. They generalize it and call it your "contribution room".

What and how u earn it inside your TFSA is irrelevant, it can be capital gain, GIC interest, bond interest, dividends, anything.

January 18, 2023
8:00 am
Bill
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Far as I can tell, re your contribution limit in a particular year all you need to know is the 3 components noted on the gov't site:

"The TFSA contribution room is the total of all of the following:
the TFSA dollar limit of the current year
any unused TFSA contribution room from previous years
any withdrawals made from the TFSA in the previous year"

The first component is $6,500 for 2023.

The 2nd one is $81,500 (to end of 2022), LESS any contributions you made over the years to Dec 31/22, PLUS any (not-yet-recontributed, still outside TFSA) withdrawals made to Dec 31/21.

The 3rd one is whatever you withdrew in 2022.

Discount bonds, secondary market GICs, etc all irrelevant.

January 18, 2023
9:05 am
Norman1
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That matches definitions in the Income Tax Act found earlier:

TFSA dollar limit for a calendar year means,

(a) for 2009 to 2012, $5,000;

(b) for 2013 and 2014, $5,500;

(c) for 2015, $10,000; and

(d) for each year after 2015, the amount (rounded to the nearest multiple of $500, or if that amount is equidistant from two such consecutive multiples, to the higher multiple) that is equal to $5,000 adjusted for each year after 2009 in the manner set out in section 117.1.

unused TFSA contribution room of an individual at the end of a calendar year means,

(a) if the year is before 2009, nil;

(a.1) in circumstances where the Minister has, in accordance with section 207.06, waived or cancelled all or part of the liability imposed on the individual, the amount determined by the Minister; and

(b) in any other case, the positive or negative amount determined by the formula

A + B + C - D

where

A is the individual’s unused TFSA contribution room at the end of the preceding calendar year,

B is the total of all amounts each of which was a distribution made in the preceding calendar year under a TFSA of which the individual was the holder at the time of the distribution, other than a distribution that is

  1. a qualifying transfer, or
  2. a specified distribution,

C is

  1. the TFSA dollar limit for the calendar year, if at any time in the calendar year the individual is 18 years of age or older and resident in Canada, and
  2. nil, in any other case, and

D is the total of all amounts each of which is a contribution made under a TFSA by the individual in the calendar year, other than a contribution that is

  1. a qualifying transfer, or
  2. an exempt contribution.

  

January 19, 2023
1:33 pm
butterflycharm
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Norman1 said
Trading price doesn't matter. On maturity, Government of Canada or whoever the bond issuer is will redeem the bond at its face value.

If one is interested in second hand GIC's, let your full-service investment broker know. The broker will call should another client want out of a GIC early. The full service investment dealers are dealers like CIBC Wood Gundy, BMO Nesbitt Burns, and RBC Dominion Securities.

The broker can also answer questions about how the yield-to-maturity calculation is done to arrive at the price of the GIC.  

Most CIBC branches couldn't get me to an advisor. Some that did said they don't know what "second hand GIC" is and they would all think it is third party GIC...bottom line they don't offer it.

One of the CIBC call takers said they don't know how to get an advisor because the people there don't want to take any calls sf-laugh

While on call I asked if there is any benefit and they said it opens many doors 🙂 Apparently they can sell third party and that is seen as an advantage to them. They don't know IBKR maybe. Probably any user on this forum knows

Called RBC Nesbit, they don't either.

Anyone has ever bought secondary GICs and has a contact to share or pm me?

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