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April 21 Federal Budget
April 7, 2015
11:06 am
Ed
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Rumour: TFSA contribution limit to double to $11,000 per year?
The Toronto Star is reporting that "a confidential letter dated April 6 from Finance Minister Joe Oliver to his caucus discusses the plan, and confirms it will be included in the upcoming budget, set to be tabled on April 21.
http://m.news1130.com/2015/04/.....sa-report/

April 7, 2015
12:50 pm
james1900
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Higher room for TFSA will benefit retired people most. As I am paying back a mortgage, there is no money left to put into any TFSA.

April 7, 2015
2:49 pm
kanaka
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james1900 said

Higher room for TFSA will benefit retired people most. As I am paying back a mortgage, there is no money left to put into any TFSA.

James.....yes for retired people and those that have their mortgage paid off. I think most retirees probably started their real serious savings in their late 40's as we suffered with high mortgage rates like anywhere between 9% and 18% which is something the younger generation is being protected from. So while we retires suffer with low low interest rates to invest for our future the TFSA is the offsetting bonus for us.

April 7, 2015
5:12 pm
Bill
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Not just for seniors, my sons are between 28 and 31 and they all use TFSAs to max. I think their attitude is mortgage rates are so low now and they think they can do better investing within their TFSAs. Plus mortgage will disappear some day anyway, better to have a full TFSA and pay off the mortgage a few years later, I think is their thinking. For some reason, none are keen on RRSPs, maybe they think retirement's a distant dream, I don't know. Either way, do whatever allows you to sleep soundly at night and suits your financial situation, plus TFSA annual limits are cumulative anyway, so the room will be there even if you can't use it for a while.

April 7, 2015
5:30 pm
kanaka
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Bill said

Not just for seniors, my sons are between 28 and 31 and they all use TFSAs to max. I think their attitude is mortgage rates are so low now and they think they can do better investing within their TFSAs. Plus mortgage will disappear some day anyway, better to have a full TFSA and pay off the mortgage a few years later, I think is their thinking. For some reason, none are keen on RRSPs, maybe they think retirement's a distant dream, I don't know. Either way, do whatever allows you to sleep soundly at night and suits your financial situation, plus TFSA annual limits are cumulative anyway, so the room will be there even if you can't use it for a while.

I always wonder what way the younger folks would go. All TFSA or RRSP or a combination. If TFSA goes to 11000....wow!!

But would they consider some RRSP aligned with there income tax to be in a lower bracket and use the refund for TFSA. Then they would have much more in registered funds at retirement. And at retirement ...not use the TFSA and pull RRSP money once again aligned with their income tax and move those funds to TFSA. Assuming they will have a company pension, CPP and OAS.

April 7, 2015
8:17 pm
Yatti420
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I have huge praise for TFSA.. 100% TFSA and if I make enough then fill rrsp.. This is the account Canadians needed going forward.. No doubt though there is a consequence for the government.. For low-mid income TFSA should be the main.. High income probably not going to matter you will use both rrsp/TFSA..

I think it'll be in the budget. I think the conservatives will make good on their promise. I think they are the only vote that will climb us out of the big debt hole instead of digging us deeper. Ontario is looking like it will be a new case study for the next economics textbook edition. Just my opinion.

April 8, 2015
8:01 am
Ed
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Gordon Pape, author of Tax Free Savings Accounts: How TFSAs Can Make You Rich, said the higher limit would make TFSAs particularly attractive to teachers, police and public servants who plan to keep earning income while collecting retirement benefits. TFSA withdrawals would not push them into a higher tax bracket. Mr. Pape said the higher limit will provide a tax shelter not only for RRIF withdrawals, but also for non-registered savings accumulated by seniors. “TFSAs only came into effect in 2009, so older people haven’t had many years to contribute to them.”

April 8, 2015
8:06 am
Bill
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Yatti, I agree. But it all depends on your personal situation. One thing I realize now is I claimed RRSP deductions when I was young, when I wasn't making much so my income tax savings were at relatively low rates - I could have saved the deductions until later in life when my income was higher and the tax refund would have been much bigger. Of course, there are many other factors at play, e.g. time value of money, inflation rates, ups and downs of your income stream over your working life, return on your investments, workplace pension, etc, but it's nice now that young folks have another option with the TFSA.

I also agree with your comments re Ontario, interesting times Ontarians have voted for. I think the Wynne Liberal plan might be to try to deliver Ontario's votes to Liberal Justin and in return he'll use federal measures to bail out Ontario. Just my opinion.

April 8, 2015
9:30 am
james1900
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Another idea, eventually TFSA will have a lifetime ceiling. Even if the limit next year will increase to 11,000. This just means the government will enforce the ceiling sooner.

April 8, 2015
8:01 pm
Ed
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Also, the $11,000. may only be phased in incrementally? On the other hand, the increase may be retroactive, as of this year?

April 9, 2015
2:12 am
Loonie
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They said they would double it, so they probably will - unless this is just a floater, but it's a bit late in the day for that.
I don't see a need, politically, for them to make it effective before 2016, but they might. It's part of their election campaign, hence the timing, the staged pre-budget leak, etc etc.
It's all about trying to secure votes in the short term and divert attention from other policy matters. Should work well for most of their usual constituency but will not help the vast majority who are nowhere near maxed out AND who will have to pay for the costs of it. It's all politics.

I will benefit personally, but I still think it's a really bad idea for Canadian society. $5500 at 3% is $165, and the tax on it at marginal 35% is about $58. Big deal. I can definitely live without that, even when compounded and added to annually, and even if the return were a bit higher.

What I really need is to know is that there is enough money in the kitty for other essentials such as health care, public transit, etc. - things that I can't make happen alone, but which will make my life much more pleasant. These are worth far more to me than another break on the TFSA. That's what government is there for, to provide for things we can't do as individuals, i.e. to benefit society as a whole. I will gladly contribute my $58 to that, and more in years to come.

Lately we haven't seen a lot of results of the kind we need that really improve our lives. The veterans, for example, are having the devil of a time getting their due even as more money is pumped into monuments and so on (the number of federal monuments in Ottawa has increased by about 50% since 2006). But more tax breaks for people like me are just a waste. The veterans in my family will not be voting for Mr Harper this time, although have in the past, and they are a long way from topping up their existing TFSAs, if any.

Existing legislation, as conceived by the late Mr Flaherty, already provides for periodic increases at a more manageable rate. We have already seen one such increase, and another is due probably next year.

Even the Globe and Mail printed an editorial against the projected increase. They note that it's a time bomb for future budgets and thus future taxpayers, the exact situation we have been trying to get ourselves OUT of in recent years.
It won't cost the government much right now, and might win votes from people who are focused on it, but the cost of it to government is cumulative, and will be crippling in the future.
http://www.theglobeandmail.com.....e23828078/

Even the Parliamentary Budget Office, another staid institution, is against it.

I guess it will be up to future governments to figure out how to undo the damage, as usual.

April 9, 2015
5:55 am
Ed
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The Feds' research argues that "people of all ages and income levels max out their TFSA contribution limits – in fact the vast majority are low-to-middle-income earners, with a large proportion being seniors.” Mr. Oliver’s letter says that 71 per cent of Canadians who currently maximize their TFSA contributions are over the age of 55 and 46 per cent are seniors. He also claims that 59 per cent of them make less than $60,000 and 91 per cent make less than $150,000. The minister’s stats however are in relation to the existing limit rather than an analysis of the impact of doubling the limit.

http://www.theglobeandmail.com.....e23819499/

April 9, 2015
8:04 am
Bill
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It's interesting to me how speculations such as lifetime TFSA ceilings, retroactivity of limits, phase-in of limits, etc arise when the government has not mentioned any of those things.
Also, TFSA amounts are not always insignificant. TFSAs are not just for savers, they are for investors as well and some have done very well since the TFSA was introduced, so the amounts that some TFSAs now generate are already quite significant. It's been low interest rates for some time and that's been a strong signal to many to invest instead of save, with or without TFSAs.
Ed, Mr Pape's comments about TFSAs benefitting the relatively small group of police, etc who continue, presumably like him, to work after retirement are, to me, political commentary. TFSAs benefit a variety of people who choose to use them.
Loonie, I won't bore everyone with a detailed response to your comments, you do make some valid points (although the Globe and Mail is the CBC of newspapers, no "conservative" views treated seriously) but just suffice it to say that I had for some time a unique view of how the federal civil service and bureaucracy work and if the average Canadian who is not a public sector worker could see what I saw everyone would heartily support any tax cut or shelter proposal. But these kinds of comments are better suited for other venues.

April 9, 2015
10:55 am
Loonie
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Ed said

The Feds' research argues that "people of all ages and income levels max out their TFSA contribution limits – in fact the vast majority are low-to-middle-income earners, with a large proportion being seniors.” Mr. Oliver’s letter says that 71 per cent of Canadians who currently maximize their TFSA contributions are over the age of 55 and 46 per cent are seniors. He also claims that 59 per cent of them make less than $60,000 and 91 per cent make less than $150,000. The minister’s stats however are in relation to the existing limit rather than an analysis of the impact of doubling the limit.

http://www.theglobeandmail.com.....e23819499/

I have no reason to think that this is not true. For seniors, it's not about income per se (although 60-150,000 is a very healthy income for a senior, especially when you add in income-splitting etc.). It comes down to assets and pensions. Seniors with significant assets who may not have high incomes per se because they are invested in low-risk instruments are able to use the TFSA as a place to park their savings or mandatory RRiF withdrawals without attracting tax on investment income. These people are not in any financial distress. On the other hand, those who live on CPP, OAS and GIS are the ones at risk, and they will never be able to afford to contribute to TFSAs.

Mr Oliver would have been more informative if he'd mentioned the percentage of Canadian adults who have regularly maxed out their contributions under the old rules. I have read that it's under 20%, and it is only reasonable to assume it will be even less when they raise the limit. (sorry, can't find that reference at the moment but saw it yesterday.)
He might also have given us a clearer picture if he'd broken down the participation rate for seniors by source of income. The most you can get from CPP/OAS/GIS is somewhere around $18,000. If their income is, let's say, $50,000, then about $32,000 of it is coming from other sources such as income from substantial assets and/or pension plans. In my view, it is not the latter group that need more tax relief. Rather, it is the ones surviving on the $18,000 who can't afford the basics, let alone drugs not covered by provincial drug plan, taxis to get to doctors appointments, etc.
You can be a millionaire, and even have a spouse who is a millionaire as well, but you may look "poor" according to Mr Oliver's way of presenting things because your "income" will quite likely still be "low" by his standards, i.e. under $60,000, if you are invested conservatively, as a senior should be.

April 9, 2015
11:02 am
Loonie
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Bill said

It's interesting to me how speculations such as lifetime TFSA ceilings, retroactivity of limits, phase-in of limits, etc arise when the government has not mentioned any of those things.

I think the government has not mentioned any of these things because they don't want to admit the fact that the increases now being considered are not sustainable and will have enormous impact on budgets in the future. Many have pointed to this, well beyond the walls of the Globe and Mail or CBC (which regularly presents us with conservative commentators such as Kevin O'Leary). Even people at the C D Howe Institute, a conservative think tank, have their doubts. http://www.moneysense.ca/save/.....tion-limit
However, we are not to worry about this because, guess what, it will all be made up for in increased taxes in other realms - GST, user fees, expenditure taxes and levies.sf-frown

April 9, 2015
12:04 pm
james1900
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Loonie said

Bill said

It's interesting to me how speculations such as lifetime TFSA ceilings, retroactivity of limits, phase-in of limits, etc arise when the government has not mentioned any of those things.

I think the government has not mentioned any of these things because they don't want to admit the fact that the increases now being considered are not sustainable and will have enormous impact on budgets in the future. Many have pointed to this, well beyond the walls of the Globe and Mail or CBC (which regularly presents us with conservative commentators such as Kevin O'Leary). Even people at the C D Howe Institute, a conservative think tank, have their doubts. http://www.moneysense.ca/save/.....tion-limit
However, we are not to worry about this because, guess what, it will all be made up for in increased taxes in other realms - GST, user fees, expenditure taxes and levies.sf-frown

Taxes have to be fair across all taxpayers. If TFSA limit is huge and poor guys do not have money to enjoy so-called tax-free investments, any increase in GST/fees to compensate tax loss on TFSA is unfair.

April 9, 2015
12:58 pm
Bill
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James, taxes are never "fair" to all taxpayers. To give one tiny illustration: Tax breaks to poor seniors, say, are not fair even to only that group because many seniors are poor due their own choices in life (have fun instead of studying when young, spend money on vacations, divorces, "toys", large homes and vehicles, quit jobs frequently during working years, foolish investments, not saving for old age, etc) while many others are poor due to mental or physical disabilities or other events not stemming from their own actions or choices. (In short, you say "poor guys do not have money" - one can't assume that's not their own fault, and I'm operating on the premise you don't want to give your hard-earned tax money to that group.) Thus a tax break to all poor seniors is not "fair" because clearly we want the breaks to go to the latter group and not the former. (Never mind that tax breaks to poor seniors are not available to poor non-seniors and so are additionally not "fair" as they discriminate based on an age number.)

April 9, 2015
1:24 pm
Ed
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In a letter to the editor today re yesterday's editorial in the G&M: Targeted Politics, Targeted Benefits, a reader argues that "higher income households are paying a very significant share of the total tax burden already. Why are people at the higher income levels not entitled to some modest tax relief, relative to the significant tax relief enjoyed by lower income earners by virtue of their markedly lower tax rates and dollar contributions?"

April 9, 2015
5:35 pm
Yatti420
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I think there will be a cap or max to tfsa contributions eventually..

April 9, 2015
8:22 pm
Loonie
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Personally, I accept the premise that keeping everyone housed, fed, doctored and able to stretch their legs a bit is a necessity in a society that hopes to thrive.

I do resent those who have squandered what they had and may end up bust as a result, but I know of no reliable statistics on that and cannot assume that there are a lot of them. I don't know any personally. Our society loves the idea of risk when it's associated with possible entrepreneurial success or stock market success, but hates it when it leads to failures. I assume that nobody intentionally sets out to become poor. I support measures to create self-sufficiency such as good pension plans that you can't cash in prematurely.
The people I happen to know who are poor fit into the following categories: mentally ill and unable to work, Metis and product of the "training school" system, uneducated and working class with numerous job changes and no pension plan, veterans, and widows of the above. More than half experienced abuse as children, had no choice but to leave school and home early and never could get past what had happened to them. This is just my own personal sample. The people I know who spent a lot of money on toys and vacations etc still have a lot of money.

Lower income earners pay less largely because they have less income, dependents and/or disabilities. People at higher income levels do get more than "modest" tax relief - dividend tax credit, lower tax on capital gains, existing TFSAs, deferrals through RRSPs and corporate tax structures for those who own businesses, tax-free capital gains from the financial leverage used to afford an expensive principal residence, income splitting for seniors and now for parents as well, to name a few, and I am sure that there are many I don't even know about - that's why they hire the expensive accountants and lawyers! While it is true that not everyone who benefits from all of these is wealthy, there is greater benefit to those who are.

My question is, why do the wealthy think they need this kind of tax break? In the first year, if they couldn't put it in a TFSA, and invested it in GICs etc and earned 3% on their extra $5500, and they were in a 50% tax bracket, the tax would be about $82; if they invested it in the stock market and achieved a higher return, the tax might work out to something similar because of the dividend tax credit and/or capital gains tax system bringing down the tax rate. For a wealthy person, this is peanuts. However, when you add up everyone in this category, it makes a big difference to the govt budget. And in years to come, it will amount to much more - which they would be able to afford, if they are continuing to accumulate it tax-free rather than spending it.

Downloading the costs onto GST and other tax streams just moves it around and will create nasty and unwelcome surprises later. Some say the poor suffer more from consumption taxes because, for example, everyone has to buy toilet paper equally. On the other hand, the rich probably spend more discretionary income.

I agree, it will likely be capped somehow sometime, because it's not sustainable. There are lots of ways to do that. In the meanwhile, as with all tax breaks, take advantage of it while you can because it might not be there later.

I'm sure most of us can think of tax breaks that were once available but are no more. My favourite was "income averaging", which was very sensible, especially for people in sales with inconsistent incomes. If your income was unusually high one year and unusually low the next year, you could "average" them out to achieve a lower tax bill overall. It was fair and a good idea. I don't remember which government brought it in or got rid of it, but it's long gone now. I wish they would bring in some good ideas like that which are fair and really help people who need it.

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