TFSAs….save taxes on the income, no taxes on withdrawals

Harveyspector

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Feb 6, 2023
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TFSA limit Officially Set at $7,000 for 2024. TFSA Contribution Limit for 2024 has been made official. The Canada Revenue Agency (CRA) confirmed that limit is $7,000 in 2024, up from $6,500 in 2023 and $6,000 in 2022. Lifetime contribution limit is $95000 in 2024. Good way to shelter your income and never pay taxes on the income….unlike the rrsps there are no taxes when you withdraw money from your TFSA.
 

JohnnyWishbone

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May 7, 2019
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Nice to see the limit has gone up. Was set at 10K for one year I think then it came back down. I think originally it was 5K
 

Ceiling Cat

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Feb 25, 2009
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You can day trade, just not in a TSFA account.
 

superstar_88

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TFSA limit Officially Set at $7,000 for 2024. TFSA Contribution Limit for 2024 has been made official. The Canada Revenue Agency (CRA) confirmed that limit is $7,000 in 2024, up from $6,500 in 2023 and $6,000 in 2022. Lifetime contribution limit is $95000 in 2024. Good way to shelter your income and never pay taxes on the income….unlike the rrsps there are no taxes when you withdraw money from your TFSA.
However, the contributions are from after tax income so in effect you've already paid the taxes. What you don't pay tax on is the increase in value but it could also decrease in value with the wrong investments and I don't believe there's a write off for losses so it goes both ways. With RRSP's your contributions are from pre-tax income so you are in effect deferring paying taxes.
 
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Ponderling

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TFSA ... contributions are from after tax income so in effect you've already paid the taxes. What you don't pay tax on is the increase in value but it could also decrease in value with the wrong investments and I don't believe there's a write off for losses so it goes both ways. With RRSP's your contributions are from pre-tax income so you are in effect deferring paying taxes.
Yep, you nailed it.
Only in non registered accounts can you deduct capital losses from capital gains, and pay tax on the net amount.
Plus get dividend tax credit on any dividends paid.

Down side is do non reg too well, grow the aasets and you get the fun of being invited to remit taxes owing quarterly.
 

explorerzip

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Yep, you nailed it.
Only in non registered accounts can you deduct capital losses from capital gains, and pay tax on the net amount.
Plus get dividend tax credit on any dividends paid.

Down side is do non reg too well, grow the aasets and you get the fun of being invited to remit taxes owing quarterly.
Keep in mind that dividends from US stocks are subject to 15% witholding tax in a TFSA and non-registered accounts. There is no witholding tax on US stocks in a RSP. Every other country has their own tax policy and treaty with Canada. So some stocks may have withholding taxes while others do not.
 

Ponderling

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Yah, I keep the US stocks in the RRSP.
In fact over half of my Scotia RSP account is held in a USD side.
So I don't get screwed quarter by quarter by brokerage FX fees on each dividend payment.
 
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jeff2

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Keep in mind that dividends from US stocks are subject to 15% witholding tax in a TFSA and non-registered accounts. There is no witholding tax on US stocks in a RSP. Every other country has their own tax policy and treaty with Canada. So some stocks may have withholding taxes while others do not.
Yeah, no withholding tax on U.K and Hong Kong stocks.
 

explorerzip

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With RRSP's your contributions are from pre-tax income so you are in effect deferring paying taxes.
There's no free lunch though. The year you turn 71 you have to make one of the following choices:

1. Withdraw everything from the RSP as a lump sum
2. Convert the RSP to a RRIF
3. Purchase an annuity

All of the choices have lifestyle and tax implications because you obviously don't want to outlive your savings. I had an uncle that was very close running out of money, but passed away before that happened.

My folks recently converted from an RSP to a RRIF and had a tough time because they had to deal with the bank. The bank associates had no idea what they were doing because they are just out of college.
 

jeff2

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There's no free lunch though. The year you turn 71 you have to make one of the following choices:

1. Withdraw everything from the RSP as a lump sum
2. Convert the RSP to a RRIF
3. Purchase an annuity

All of the choices have lifestyle and tax implications because you obviously don't want to outlive your savings. I had an uncle that was very close running out of money, but passed away before that happened.

My folks recently converted from an RSP to a RRIF and had a tough time because they had to deal with the bank. The bank associates had no idea what they were doing because they are just out of college.
Generally speaking, for people making less than around $55,000., it is TFSA all the way.
 

explorerzip

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Yah, I keep the US stocks in the RRSP.
In fact over half of my Scotia RSP account is held in a USD side.
So I don't get screwed quarter by quarter by brokerage FX fees on each dividend payment.
Can't remember where I read this, but some people setup USD and CAD RSP and TFSA accounts. They transfer cash between the two (USD TFSA to CAD TFSA and USD RSP to CAD RSP.) When USD is high they transfer cash to the CAD account and vice versa when the CAD is high. Transferring cash between accounts isn't a withdrawl and it's not technically day trading. Obviously, if you're doing it excessively then the CRA will take notice.
 

jeff2

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Can't remember where I read this, but some people setup USD and CAD RSP and TFSA accounts. They transfer cash between the two (USD TFSA to CAD TFSA and USD RSP to CAD RSP.) When USD is high they transfer cash to the CAD account and vice versa when the CAD is high. Transferring cash between accounts isn't a withdrawl and it's not technically day trading. Obviously, if you're doing it excessively then the CRA will take notice.
Probably get whacked like mad with conversion fees unless you start playing around with Norbert's Gambit.
The joys of being an investor in Canada.

 

explorerzip

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Probably get whacked like mad with conversion fees unless you start playing around with Norbert's Gambit.
The joys of being an investor in Canada.

I think this is it, but I don't think it necessarily needs to involve buying and selling stocks or ETFs. I thought I read or heard that people simply move cash between USD and CAD accounts as a straight foreign exchange.

Agreed though that there are so many considerations we Canadian investors have to go through.
 

barnacler

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May 13, 2013
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I suspect that at some time a government will limit the amount in TFSAs. I have INVESTED (not traded) my TFSA aggressively from the start and it is now over $220 K. Almost all my holdings never get sold. I have a friend at $260k. It could easily reach very large numbers, and for a couple it could easily reach over a million or much more as they get into retirement. I can't see any left-wing government abiding individuals earning say 75k a year tax free.

I made a quick and dirty spreadsheet where you save $5,000 2009 dollars per year, and earn 3% real returns (after inflation) . Those numbers are designed to be 2009 dollars, when TFSAs started. So the 3% is a 3% REAL return. In this case it grows to $839,000 in 60 years. So the nominal number would be far higher.

Might be tough politically to stop it, but it will be interesting to see how it pans out.

There are several big advantages to TFSAs as far as I am concerned.

1) You don't lose your contribution room OR YOUR ACCUMULATED VALUE if you decide to withdraw funds. With RRSPs you do lose it forever. Read the rules about intra-year withdrawals though.

2) If you die with no spouse with a HUGE RRSP the government takes half, because you are yanked up the tax brackets because it is all considered income in the year of death. That doesn't happen with TFSAs. Their withdrawal does not influence your tax rate.

3) TFSAs are tax-rate immune. It doesn't matter what tax rates are when you withdraw/make gains. Of course, with RRSPs this CAN be to your benefit if your tax rate is lower then when you contributed, but that leads to point 4...

4) RRSP refunds are not refunds, they are PAYMENTS for a STAKE in your RRSP. A refund is what the government pays you to become a partner. Don't be fooled by the illusion that you 'have' what is in your RRSP. You don't, you have that amount pre-tax. If you do not reinvest the refund completely, you really have sort of effectively made a withdrawal of that amount.

5) TFSAs do not require income to generate contribution room.
 
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