April 21 Federal Budget | Page 2 | Tax Free Savings Accounts | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
April 21 Federal Budget
April 10, 2015
7:53 am
Bill
Member
Members
Forum Posts: 1415
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Loonie, some of your points make some sense to me but overall I can tell that we see society from quite different vantage points, so I'll just leave it at that. With regard to income averaging, I miss it too, but RRSP can be used for that purpose. One of my sons was in the mining business for a few years, made great dough, socked max RRSPs away, got tax deductions at highest rates. I think he's looking at spending a few years on the sidelines now, being a professional gal's boy toy and around the house handyman, so over time he could withdraw from his RRSPs at levels that will minimize or have no tax. He's a lot smarter than his dad was.

April 10, 2015
2:20 pm
Loonie
Member
Members
Forum Posts: 5415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

RRSP can be used for income averaging, but doesn't work as well because if you need to cash it in to "average" out your income while you are still in your earning years, then you have lost that contribution room forever and thus the retirement benefit that it was created to provide. The RRSP is better than nothing though.

I appreciate your not wanting to get into an argument, Bill. I think it's important to present a different point of view than the majority which have been expressed here, and I guess that's my job!

April 11, 2015
9:28 am
Norman1
Member
Members
Forum Posts: 2492
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said
...
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.

That's not the question actually. The doubling of the TFSA annual limit was a campaign promise. Whether it is good policy or not is a different matter. They promised it. They got elected. Now, there's a chance to fulfill it and they may take it.

An extra $5,500 a year in an TFSA is not much in the first year. But, it will be substantial over a longer period due to compounding. The extra $5,500 per year over 20 years, at 5% per annum average compounded, will become an extra $190,956. Subtracting the $110,000 of original contributions, one ends up with a extra gain of $80,956 which the government gave up the taxes on.

With stocks, there is a good chance one could achieve long-term return of 7% per annum. With 7%, one would end up with an extra $241,258 in the TFSA in 20 years. Of that, $131,258 would be gains, which the government gave up the taxes on.

April 11, 2015
9:37 am
Norman1
Member
Members
Forum Posts: 2492
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said
...
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.
...

The poor don't actually suffer from GST, HST, or provincial sales taxes.

They do pay the consumption taxes at the cash register. But, they get them back at income tax return time through refundable sales tax credits. Those credits are clawed back for higher income folks.

The net effect is that the poor end up getting the sales taxes on their toilet paper back but the rich don't.

April 11, 2015
12:05 pm
Norman1
Member
Members
Forum Posts: 2492
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said
...
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.

I found this 2011 Globe & Mail article Income averaging deserved to die. Let's not revive it. Looks like income averaging was gone way back in 1988. The article's writer Kevin Milligan is not keen to see it come back:

I see three reasons why income averaging deserved its death, and should stay that way.

First, the averaging mechanisms became extremely complicated. There were rules to make sure high-income people didn't use income averaging as a tax dodge. There were adjustments for inflation. There were special rules for trusts. In short, income averaging added a substantial administrative burden to the tax system.

Second, we don't have so many tax brackets any more. In 1971, there were 17 different federal tax brackets. The income ranges for these brackets were much smaller in the past, meaning you were more likely to be bumped into a higher bracket with volatile income. Now in 2011, with only four broad brackets, volatile income creates fewer problems.

Third, the rate structure is much flatter now. Federal tax rates in 1971 ranged from 11 per cent up to 80 per cent. For 2011, the rates range from 15 per cent to 29 per cent. ....
....

Also, Form T581 indicates that income averaging involved more than just moving income from one year to another. One had to prepay federal income taxes, at a rate of 29%, and the provincial income tax (Ontario was an additional 51% of the 29%) on such income that was to be taxed in some future year.

April 11, 2015
3:02 pm
Loonie
Member
Members
Forum Posts: 5415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Norman1 said

Loonie said
...
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.

That's not the question actually. The doubling of the TFSA annual limit was a campaign promise. Whether it is good policy or not is a different matter. They promised it. They got elected. Now, there's a chance to fulfill it and they may take it.

An extra $5,500 a year in an TFSA is not much in the first year. But, it will be substantial over a longer period due to compounding. The extra $5,500 per year over 20 years, at 5% per annum average compounded, will become an extra $190,956. Subtracting the $110,000 of original contributions, one ends up with a extra gain of $80,956 which the government gave up the taxes on.

With stocks, there is a good chance one could achieve long-term return of 7% per annum. With 7%, one would end up with an extra $241,258 in the TFSA in 20 years. Of that, $131,258 would be gains, which the government gave up the taxes on.

With respect, I don't think anyone gets to tell me what my question is.
Yes, it was an ill-advised campaign promise which garnered votes, and they are likely to fulfill it, hoping that people will not notice how it will strap the governments of the future.
I already said that it would amount to much more in years to come, so calculating it only supports what I said. It would indeed be a huge loss to the govt., which we can't afford.

However, as for returns from the stock market, it's impossible to predict returns 20 years down the road or how much of it will be capital gains or dividends, both of which are already favourably taxed. It doesn't matter what may have happened in the past. The future is unknowable. However, the wealthier you are, the better advantage you already get from capital gains, without sheltering it in a TFSA. Isn't that enough? It seems some people think they have a right to not pay any tax on investment income. From that point of view, what is so magical about $11,000? Why stop there? How do you rationally decide what is an optimum level? There is none.

Seems to me that in an era when the minimum wage is less than the real cost of living in Toronto. it makes sense not to exempt even more investment income completely from taxation. I wonder how much of it comes from companies which do not pay a living wage. Funny how those statistics don't seem to be so readily available.

On that note, I heard last night on the TV news that DUCA credit union has pledged to pay all its employees a living wage reflecting what it really costs to live in the area, which was approximately $18.50/hr. They have challenged other employers to do likewise. Three cheers for DUCA!

April 11, 2015
3:06 pm
Loonie
Member
Members
Forum Posts: 5415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Norman1 said

Loonie said
...
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.

I found this 2011 Globe & Mail article Income averaging deserved to die. Let's not revive it. Looks like income averaging was gone way back in 1988. The article's writer Kevin Milligan is not keen to see it come back:

I see three reasons why income averaging deserved its death, and should stay that way.

First, the averaging mechanisms became extremely complicated. There were rules to make sure high-income people didn't use income averaging as a tax dodge. There were adjustments for inflation. There were special rules for trusts. In short, income averaging added a substantial administrative burden to the tax system.

Second, we don't have so many tax brackets any more. In 1971, there were 17 different federal tax brackets. The income ranges for these brackets were much smaller in the past, meaning you were more likely to be bumped into a higher bracket with volatile income. Now in 2011, with only four broad brackets, volatile income creates fewer problems.

Third, the rate structure is much flatter now. Federal tax rates in 1971 ranged from 11 per cent up to 80 per cent. For 2011, the rates range from 15 per cent to 29 per cent. ....
....

Also, Form T581 indicates that income averaging involved more than just moving income from one year to another. One had to prepay federal income taxes, at a rate of 29%, and the provincial income tax (Ontario was an additional 51% of the 29%) on such income that was to be taxed in some future year.

I won't take the time to revisit all the aspects of past income-averaging. If it was awkwardly arranged, then it could be done better another time. I can say that it worked well for me for the 2 or 3 years that I needed it and that people I know who have worked in real estate for many years wish they still had it and find the RRSP is their only alternative and that it is not as good. I daresay Kevin Milligan isn't old enough to know what he's talking about from personal experience or else he'd be a full professor or emeritus by now. The accompanying changes in the tax structure which he cites were not considered a good thing by everyone.

April 11, 2015
3:19 pm
Loonie
Member
Members
Forum Posts: 5415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Norman1 said

Loonie said
...
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.
...

The poor don't actually suffer from GST, HST, or provincial sales taxes.

They do pay the consumption taxes at the cash register. But, they get them back at income tax return time through refundable sales tax credits. Those credits are clawed back for higher income folks.

The net effect is that the poor end up getting the sales taxes on their toilet paper back but the rich don't.

Norman1 said

Loonie said
...
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.
...

The poor don't actually suffer from GST, HST, or provincial sales taxes.

They do pay the consumption taxes at the cash register. But, they get them back at income tax return time through refundable sales tax credits. Those credits are clawed back for higher income folks.

The net effect is that the poor end up getting the sales taxes on their toilet paper back but the rich don't.

I would have to check on the sales tax credit, but for sure it is not based on how much tax is actually spent. It's not a refund.
User fees hit everyone and, in my opinion, are more likely to happen. I only mentioned the GST because other commentators felt this was an alternative. Personally, I don't think it's too likely because of the anti-tax mentality which is so prevalent.

April 11, 2015
8:18 pm
Yatti420
Canada
Member
Members
Forum Posts: 323
Member Since:
July 10, 2011
sp_UserOfflineSmall Offline

I don't think that raising the limit will restrict future govt. The TFSA contribution can be stopped at anytime. The limits can be decreased.. Caps can be imposed etc. It certainly wasn't I'll advised in that respect. While it probably garnered a few votes the con's showed they had clear goals. Set the goals and stuck to them..

Just look at Ontario for an example of a Liberal run country/province. Ontario is gonna be a fiscal laughingstock..

April 11, 2015
8:47 pm
Loonie
Member
Members
Forum Posts: 5415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Why set up something that only has to be reversed later when the problem has already emerged? If it's only for the short term, then that makes it look even more like election candy.

If only they were consistent about setting goals and meeting them. Somehow, people often only seem to notice certain kinds of promise fulfilment. With infrastructure promises it's a different story. They keep promising the same money over and over again but don't actually hand it over.

There are many issues with the Ontario gov't. Lack of cooperation from the federal gov't is one of the ones that has contributed significantly to current problems. Here is a more detailed statement of the problem from Ontario's point of view:
http://www.fin.gov.on.ca/en/bu.....4/ch3.html

April 12, 2015
7:59 am
xxxx
Member
Banned
Forum Posts: 338
Member Since:
June 29, 2013
sp_UserOfflineSmall Offline

Loonie said
There are many issues with the Ontario gov't. Lack of cooperation from the federal gov't is one of the ones that has contributed significantly to current problems. Here is a more detailed statement of the problem from Ontario's point of view:
http://www.fin.gov.on.ca/en/bu.....4/ch3.html

Interesting to read that link. We all know now that electing the Ontario Liberals was a very poor decision by Ontario voters - the party was rewarded for its fiscal irresponsibilty over many years. I find it ridiculous that the present Premier Ms. Wynne is blaming all of Ontario's fiscal problems on the federal govt - it is time she accepts responsibility for Ontario being the province in the poorest financial "seriously indebted" situation and do something about it rather than blaming the fed PC and Harper. Thanks to Ms. Wynne's ridiculous accusations, I will definitely vote PC for the next federal election - at least the fed PCs try to be fiscally responsible.

April 12, 2015
1:10 pm
Loonie
Member
Members
Forum Posts: 5415
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I would be shocked if you didn't vote for the Harperites, Brian!sf-smile

Of course, this document from the Ontairo gov't is political, but, sadly, there is some truth in it. Many other sources have made similar calculations.

Perhaps we should now just wait and see what is actually in this budget.

April 12, 2015
1:26 pm
xxxx
Member
Banned
Forum Posts: 338
Member Since:
June 29, 2013
sp_UserOfflineSmall Offline

Loonie said

I would be shocked if you didn't vote for the Harperites, Brian!sf-smile

and I would have been shocked if you had not responded with a "put-down" - "Harperites"??. I am entitled to my opinion too and you, Sir, project a "my way or the highway" attitude - just my humble opinion, of course.

April 12, 2015
1:41 pm
Yatti420
Canada
Member
Members
Forum Posts: 323
Member Since:
July 10, 2011
sp_UserOfflineSmall Offline

Personally I wonder if the Ontario government will amend the gas tax breakdown stickers found on some gas pumps to show the results from the carbon cap & trade (tax) that is being shoved down our throats.. lol..

April 14, 2015
7:05 pm
Norman1
Member
Members
Forum Posts: 2492
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Loonie said
...
With respect, I don't think anyone gets to tell me what my question is.

Yes, it was an ill-advised campaign promise which garnered votes, and they are likely to fulfill it, hoping that people will not notice how it will strap the governments of the future.
I already said that it would amount to much more in years to come, so calculating it only supports what I said. It would indeed be a huge loss to the govt., which we can't afford.

However, as for returns from the stock market, it's impossible to predict returns 20 years down the road or how much of it will be capital gains or dividends, both of which are already favourably taxed. It doesn't matter what may have happened in the past. The future is unknowable. However, the wealthier you are, the better advantage you already get from capital gains, without sheltering it in a TFSA. Isn't that enough? It seems some people think they have a right to not pay any tax on investment income. From that point of view, what is so magical about $11,000? Why stop there? How do you rationally decide what is an optimum level? There is none.
....

I think the doubling of the annual TFSA limit is just the fulfillment of a campaign promise. There's nothing more to it. I don't think one will get any additional insights by pondering if the rich need it or not. More money is always welcome, by the rich and the poor. Do the rich or anyone really need those stainless steel appliances, marble countertops, or heated car steering wheels?

Like Yatti420, I don't think it will restrict future governments either. Implementation would be through changes to the Income Tax Act. Such changes could be undone easily. To me, that looks like political fear mongering.

I've seen enough changes to the Canadian tax system to believe that policies can change and easily so. The capital gains inclusion rate went from 0% to 50% to 75% to 66 2/3% and back to 50% over less than five decades. A capital gains exemption was introduced and then restricted when its effects became undesirable. The taxation of income trusts remained the way it was until the banks started thinking about reorganizing as trusts. You mentioned the repeal of forward income averaging. Wasn't there something called the Registered Home Ownership Savings Plan (RHOSP) that's now gone? TFSA's could be abolished the same way, if needed.

I also don't agree that stock market returns are impossible to predict. If that were the case, then those projections about the amount of taxes lost by doubling the TFSA limit would be completely bogus.

If it comes to pass, I would enjoy the extra $5,500 of TFSA contribution room each year, for as long as it lasts.

April 15, 2015
3:55 am
stylintheo
Newbie
Members
Forum Posts: 1
Member Since:
February 20, 2010
sp_UserOfflineSmall Offline

if the tfsa doubles
what year would it start to be 11000?

April 15, 2015
8:52 am
Ed
Member
Members
Forum Posts: 86
Member Since:
April 1, 2015
sp_UserOfflineSmall Offline

stylintheo said

if the tfsa doubles
what year would it start to be 11000?

We'll have to wait until Tuesday for all the details. Could start immediately. Could have to wait till next year. Or, could be implemented in stages. Who knows?

April 21, 2015
3:42 pm
phrank
Member
Members
Forum Posts: 83
Member Since:
January 3, 2009
sp_UserOfflineSmall Offline

So it looks like it was raised to 10k effective immediately.

Good news for those who can afford to use this vehicle:

http://www.cbc.ca/news/busines.....-1.3040853

April 21, 2015
4:45 pm
Ed
Member
Members
Forum Posts: 86
Member Since:
April 1, 2015
sp_UserOfflineSmall Offline

voodoo22 said

So it looks like it was raised to 10k effective immediately.

Good news for those who can afford to use this vehicle:

http://www.cbc.ca/news/busines.....-1.3040853

I wouldn't advise anyone to increase their current contribution to today's increased limit until the CRA updates their website and acknowledges the new limit. Otherwise, premature contributors may face a penalty.

April 21, 2015
5:33 pm
Rick
Member
Members
Forum Posts: 824
Member Since:
February 17, 2013
sp_UserOfflineSmall Offline

good enough for me - straight from the governments web site:
http://www.budget.gc.ca/2015/d.....tion_Limit

$4500.00 already transfered and tax-sheltered
sf-laugh

No permission to create posts

Please write your comments in the forum.