Topic: The money thread

[wing]

Yup tfsa will be huge for those under 18 right now.

Also I made $38k in 3 years as I just started to use it in 2011

[HeliDriver]

The conservatives have  promised to increase the TFSA limit to $10,000 if they balance the budget next  year. Who knows if they will keep their promise.

It's not the 1 and 2 year scenarios I'm worried about (or even this party vs. that), it's the 5, 10 and 20 year and future demographics. Think about the day when the first investors arrive at retirement with full TFSAs and empty RSPs – that's zero tax revenue. I'd like to believe we'll get there but we do live in a pretty socialist country.

But is the government really making much tax revenue on RSPs??  They still grow tax free and you're only paying income tax on withdrawal.

Sure that taxable amount will grow between deposit and withdrawal time, but (in general), at no greater rate than the government could grow the value of the initial tax amount.   Assuming they can make as wise an investment decision as you can.

There's also the consideration that most people would pay taxes at a higher marginal tax rate during their working years than in retirement.  So theoretically the gov't could be actually losing money in the long term on the RSP.

Or am I missing something obvious here? 

RRSP is about tax deferral. You pay less tax today (RRSP deduction) but end up paying tax on the full amount (contributions + growth) on withdrawal.

So, the government probably doesn't much care if people forego RRSPs. They'll just get their money now instead of later.

But, big picture, those huge pools of tax-free TFSAs will look mighty tempting in 10-20-30 years. I'm sure future governments will want to get their hands in that cookie jar. Nothing says the rules can't be changed down the road.

[evil_twin]

The conservatives have  promised to increase the TFSA limit to $10,000 if they balance the budget next  year. Who knows if they will keep their promise.

It's not the 1 and 2 year scenarios I'm worried about (or even this party vs. that), it's the 5, 10 and 20 year and future demographics. Think about the day when the first investors arrive at retirement with full TFSAs and empty RSPs – that's zero tax revenue. I'd like to believe we'll get there but we do live in a pretty socialist country.

But is the government really making much tax revenue on RSPs??  They still grow tax free and you're only paying income tax on withdrawal.

Sure that taxable amount will grow between deposit and withdrawal time, but (in general), at no greater rate than the government could grow the value of the initial tax amount.   Assuming they can make as wise an investment decision as you can.

There's also the consideration that most people would pay taxes at a higher marginal tax rate during their working years than in retirement.  So theoretically the gov't could be actually losing money in the long term on the RSP.

Or am I missing something obvious here? 

RRSP is about tax deferral. You pay less tax today (RRSP deduction) but end up paying tax on the full amount (contributions + growth) on withdrawal.

So, the government probably doesn't much care if people forego RRSPs. They'll just get their money now instead of later.

But, big picture, those huge pools of tax-free TFSAs will look mighty tempting in 10-20-30 years. I'm sure future governments will want to get their hands in that cookie jar. Nothing says the rules can't be changed down the road.

Absolutely.  I was just questioning whether the forgoing of RSP's really mattered.  Might change some financial planning for the gov't...but shouldn't theoretically change the long term tax revenue.

Certainly TFSA contribution room cannot continue to grow indefinitely.   

[Snowman]

TFSA'a are great, even with medium risk investing we have our up to $75k and when we retire in 8 years should be around $280k. Will have to use $100k to pay the mortgage off early tho. Should have hid the earnings statements better so my wife would have not said "why can't retire 5 years sooner" 

[HeliDriver]

The conservatives have  promised to increase the TFSA limit to $10,000 if they balance the budget next  year. Who knows if they will keep their promise.

It's not the 1 and 2 year scenarios I'm worried about (or even this party vs. that), it's the 5, 10 and 20 year and future demographics. Think about the day when the first investors arrive at retirement with full TFSAs and empty RSPs – that's zero tax revenue. I'd like to believe we'll get there but we do live in a pretty socialist country.

But is the government really making much tax revenue on RSPs??  They still grow tax free and you're only paying income tax on withdrawal.

Sure that taxable amount will grow between deposit and withdrawal time, but (in general), at no greater rate than the government could grow the value of the initial tax amount.   Assuming they can make as wise an investment decision as you can.

There's also the consideration that most people would pay taxes at a higher marginal tax rate during their working years than in retirement.  So theoretically the gov't could be actually losing money in the long term on the RSP.

Or am I missing something obvious here? 

RRSP is about tax deferral. You pay less tax today (RRSP deduction) but end up paying tax on the full amount (contributions + growth) on withdrawal.

So, the government probably doesn't much care if people forego RRSPs. They'll just get their money now instead of later.

But, big picture, those huge pools of tax-free TFSAs will look mighty tempting in 10-20-30 years. I'm sure future governments will want to get their hands in that cookie jar. Nothing says the rules can't be changed down the road.

Absolutely.  I was just questioning whether the forgoing of RSP's really mattered.  Might change some financial planning for the gov't...but shouldn't theoretically change the long term tax revenue.

Certainly TFSA contribution room cannot continue to grow indefinitely.   

Well, if someone puts money into an RRSP, they will eventually end up paying tax on the growth.

If someone chooses to put that money into a TFSA instead, that growth will not be taxed.

So I can see how the government will lose out if people forego RRSPs in favour of TFSAs.

[mmret]

One of the reasons I'm thankful to have my own business is that I can (at least attempt) to ramp up revenue to respond to financial surprises. If I was an independent consultant I'd hit a capacity/income ceiling...but jettison the risk/baggage of LOTS of overhead. I think about this issue a lot.

An age old issue. Scalability vs risk.

You can work at Starbucks, earn a flat salary and have very little "business risk" in that sense. You're not taking out a loan to work there. But your total compensation is limited by the amount of time you can work there per day - there is a cap that you're never going to get over.

Or you can own the Starbucks (or several Starbucks). By acquiring more and more stores your ultimate earnings potential is vast, but at the same time your risks are also much greater (fixed costs, loans, etc.!)

Labour vs Capital.



---

I graduated in 07 so have been pretty much TFSA'd for life, but have tons of nonreg savings anyways. You can't trade derivatives and use leverage etc. in registered accounts which makes them totally non-core to my financial situation. I max them out but don't pay much attention to it, just buy something and forget about it.

[tpl]

I am "melting" my RRSP in these last 3 years before having to take it all into a RRIF with its mandatory payout.

Taking out lumpsums, paying tax, buying an investment with the money for the income stream in the future.   Then I can split that money I have taken out with mrs tpl so we can both end up with a low marginal rate and equal income.  It is all a balance between income and taxes.   If the marginal rates in Canada went up less steeply then I suspect a different strategy might be better.
For obvious reasons this works best if the RRSP is big enough and one is near to 71. 


I also suspect that no matter what Ms Wynne SAYS  that after the budget there may be a strategy change...like moving to AB.

[HeliDriver]

I am "melting" my RRSP in these last 3 years before having to take it all into a RRIF with its mandatory payout.

Taking out lumpsums, paying tax, buying an investment with the money for the income stream in the future.   Then I can split that money I have taken out with mrs tpl so we can both end up with a low marginal rate and equal income.  It is all a balance between income and taxes.   If the marginal rates in Canada went up less steeply then I suspect a different strategy might be better.
For obvious reasons this works best if the RRSP is big enough and one is near to 71. 

I also suspect that no matter what Ms Wynne SAYS  that after the budget there may be a strategy change...like moving to AB.

Just curious, but is the plan to loan the money to Mrs. tpl at the prescribed rate so she can then invest it?

I ask because I find all the income attribution rules ridiculous. I wanted to give my wife some money a few years ago so she could put it in her RRSP, but no, you're not allowed to do that. (Don't want a spousal RRSP. She earns plenty of money, just likes to spend it...)

So I can't just give her five grand, but if she puts her entire $5k paycheque into her RRSP, and then that month I pay for all the groceries, cover her share of the mortgage payment, put gas in her car, buy her clothes, makeup, etc., then apparently that's fine.

Too much hassle, so I just wrote up a promissory note for a loan at 1% and did it that way. May as well be totally legit, and she pays me the interest by cheque each January. Just seems completely silly to me. Why can't we just file a single return as a couple and forget about all the nonsense?

[evil_twin]

RRSP is about tax deferral. You pay less tax today (RRSP deduction) but end up paying tax on the full amount (contributions + growth) on withdrawal.

So, the government probably doesn't much care if people forego RRSPs. They'll just get their money now instead of later.

But, big picture, those huge pools of tax-free TFSAs will look mighty tempting in 10-20-30 years. I'm sure future governments will want to get their hands in that cookie jar. Nothing says the rules can't be changed down the road.

Absolutely.  I was just questioning whether the forgoing of RSP's really mattered.  Might change some financial planning for the gov't...but shouldn't theoretically change the long term tax revenue.

Certainly TFSA contribution room cannot continue to grow indefinitely.   

Well, if someone puts money into an RRSP, they will eventually end up paying tax on the growth.

If someone chooses to put that money into a TFSA instead, that growth will not be taxed.

So I can see how the government will lose out if people forego RRSPs in favour of TFSAs.

You're still not paying capital gains tax on the growth in the RRSP, you're just paying the differed income tax.   If someone puts it into a TFSA instead, they are paying the government the tax up front.   

The "extra" income tax on that growth in the RRSP is not additional tax revenue for the government.  It's simply the amount of growth they should theoretically have made if they had your tax dollars up front (like a TFSA).

Certainly you can come up with situations where one or the other would be more beneficial to the investor, but averaged over the general population, it shouldn't change the long term tax revenue.

[Ex-airbalancer]

Yup tfsa will be huge for those under 18 right now.

Also I made $38k in 3 years as I just started to use it in 2011

Maybe you are in the wrong line of work if you can get those returns 

[mmret]

Too much hassle, so I just wrote up a promissory note for a loan at 1% and did it that way. May as well be totally legit, and she pays me the interest by cheque each January. Just seems completely silly to me. Why can't we just file a single return as a couple and forget about all the nonsense?

On the margin it would benefit high income households disproportionately. So its political suicide.

Nevermind the question of whether the current situation is fair or not to begin with....

[tpl]

I am "melting" my RRSP in these last 3 years before having to take it all into a RRIF with its mandatory payout.

Taking out lumpsums, paying tax, buying an investment with the money for the income stream in the future.   Then I can split that money I have taken out with mrs tpl so we can both end up with a low marginal rate and equal income.  It is all a balance between income and taxes.   If the marginal rates in Canada went up less steeply then I suspect a different strategy might be better.
For obvious reasons this works best if the RRSP is big enough and one is near to 71. 

I also suspect that no matter what Ms Wynne SAYS  that after the budget there may be a strategy change...like moving to AB.

Just curious, but is the plan to loan the money to Mrs. tpl at the prescribed rate so she can then invest it?

I ask because I find all the income attribution rules ridiculous. I wanted to give my wife some money a few years ago so she could put it in her RRSP, but no, you're not allowed to do that. (Don't want a spousal RRSP. She earns plenty of money, just likes to spend it...)

So I can't just give her five grand, but if she puts her entire $5k paycheque into her RRSP, and then that month I pay for all the groceries, cover her share of the mortgage payment, put gas in her car, buy her clothes, makeup, etc., then apparently that's fine.

Too much hassle, so I just wrote up a promissory note for a loan at 1% and did it that way. May as well be totally legit, and she pays me the interest by cheque each January. Just seems completely silly to me. Why can't we just file a single return as a couple and forget about all the nonsense?

Mrs tpl has more money than me anyway.  Our finances are integrated and of course neither of us have RRSP room.     What we are doing in essence is filing a joint return as close as we can.   It may not be the absolute most efficient way to do it...by mmret's standards but we are older than most of you guys.


Sent from my iPad using Tapatalk HD

[tpl]

Too much hassle, so I just wrote up a promissory note for a loan at 1% and did it that way. May as well be totally legit, and she pays me the interest by cheque each January. Just seems completely silly to me. Why can't we just file a single return as a couple and forget about all the nonsense?

On the margin it would benefit high income households disproportionately. So its political suicide.

Nevermind the question of whether the current situation is fair or not to begin with....

I remember the Feminist movement in Canada arguing that allowing US style joint returns would be a throwback to the days when women were dependent on their wage earning husbands.  Seemed a badly thought out argument to me.


Sent from my iPad using Tapatalk HD

[HeliDriver]

And thinking out loud about the silliness...

I bought my wife a dirt bike back in 2010. It was a gift. Insurance and registration have been in her name the whole time. She's going to sell it this spring, and I suggested it might be good for her to put the money in her RRSP.

So, that's legit right? It's her bike, therefore her money to put into her RRSP, no?

So why couldn't I give my wife $5,000 to do with as she pleases (it's a gift), then maybe a year later she decides to put $5,000 into her RRSP. Who says it's the same $5,000?

[goodsonr]

I ask because I find all the income attribution rules ridiculous. I wanted to give my wife some money a few years ago so she could put it in her RRSP, but no, you're not allowed to do that. (Don't want a spousal RRSP. She earns plenty of money, just likes to spend it...)

I did not realize that was the case.  I wonder what would happen when there is a joint account that both parties contribute to, and withdraw from?

But is the government really making much tax revenue on RSPs??  They still grow tax free and you're only paying income tax on withdrawal.

Sure that taxable amount will grow between deposit and withdrawal time, but (in general), at no greater rate than the government could grow the value of the initial tax amount.   Assuming they can make as wise an investment decision as you can.

There's also the consideration that most people would pay taxes at a higher marginal tax rate during their working years than in retirement.  So theoretically the gov't could be actually losing money in the long term on the RSP.

Or am I missing something obvious here? 

My financial-wizard friend says that he has run the numbers and it is always advantageous to contribute to your RRSP  ... as long as you always re-invest the refund.  This was for people who have money to put in.. not people who take a loan and then pay off part of the loan with the refund.

[mmret]

I ask because I find all the income attribution rules ridiculous. I wanted to give my wife some money a few years ago so she could put it in her RRSP, but no, you're not allowed to do that. (Don't want a spousal RRSP. She earns plenty of money, just likes to spend it...)

I did not realize that was the case.  I wonder what would happen when there is a joint account that both parties contribute to, and withdraw from?

I believe that technically you have to do the accounting yourself, ie: "my" $100 went to buy X, "her" $100 went to buy Y, and you claim the gains on each individually.

Its absolutely absurd, but there you go.

[tpl]

I ask because I find all the income attribution rules ridiculous. I wanted to give my wife some money a few years ago so she could put it in her RRSP, but no, you're not allowed to do that. (Don't want a spousal RRSP. She earns plenty of money, just likes to spend it...)

I did not realize that was the case.  I wonder what would happen when there is a joint account that both parties contribute to, and withdraw from?

I believe that technically you have to do the accounting yourself, ie: "my" $100 went to buy X, "her" $100 went to buy Y, and you claim the gains on each individually.

Its absolutely absurd, but there you go.

In practice I bet very few regular people keep accounts like that and the CRA knows that they'd have no chance of ever enforcing it.   If RRSP contris are made from a joint account then by definition ( or the last years notice of assessment) each party must have earnt enough money to make their contri.

[Snowman]

I ask because I find all the income attribution rules ridiculous. I wanted to give my wife some money a few years ago so she could put it in her RRSP, but no, you're not allowed to do that. (Don't want a spousal RRSP. She earns plenty of money, just likes to spend it...)

I did not realize that was the case.  I wonder what would happen when there is a joint account that both parties contribute to, and withdraw from?

I believe that technically you have to do the accounting yourself, ie: "my" $100 went to buy X, "her" $100 went to buy Y, and you claim the gains on each individually.

Its absolutely absurd, but there you go.

In practice I bet very few regular people keep accounts like that and the CRA knows that they'd have no chance of ever enforcing it.   If RRSP contris are made from a joint account then by definition ( or the last years notice of assessment) each party must have earnt enough money to make their contri.

Exactly.

[ArticSteve]

Too much hassle, so I just wrote up a promissory note for a loan at 1% and did it that way. May as well be totally legit, and she pays me the interest by cheque each January. Just seems completely silly to me. Why can't we just file a single return as a couple and forget about all the nonsense?

With all due respect, that is just nuts man.  Assuming you are declaring that 1% which simply shines the spot light on you.

  "Whale with the biggest spout, gets the harpoon".

You can give ANYONE, any amount of money, tax free.  It's the last true act of freedom we have left in this country.   Obviously, we are not talking property and investment transfers subject to taxable gains.  Just straight clean CASH, as in already taxed for whatever reason.  (or not  ).

[HeliDriver]

Too much hassle, so I just wrote up a promissory note for a loan at 1% and did it that way. May as well be totally legit, and she pays me the interest by cheque each January. Just seems completely silly to me. Why can't we just file a single return as a couple and forget about all the nonsense?

With all due respect, that is just nuts man.  Assuming you are declaring that 1% which simply shines the spot light on you.

  "Whale with the biggest spout, gets the harpoon".

You can give ANYONE, any amount of money, tax free.  It's the last true act of freedom we have left in this country.   Obviously, we are not talking property and investment transfers subject to taxable gains.  Just straight clean CASH, as in already taxed for whatever reason.  (or not  ).

Yes, you can give anyone any amount of money, tax free, but CRA has something to say about how any income earned from that money afterwards gets taxed. I may be crazy for actually writing up that promissory note (and, yes, declaring the interest on my return), but I'm pretty sure that's the only legit way to do it.

I could take my chances and probably never get caught, but I enjoy sleeping peacefully knowing I have nothing to hide if the audit guy comes knocking on my door.

I ask because I find all the income attribution rules ridiculous. I wanted to give my wife some money a few years ago so she could put it in her RRSP, but no, you're not allowed to do that. (Don't want a spousal RRSP. She earns plenty of money, just likes to spend it...)

I did not realize that was the case.  I wonder what would happen when there is a joint account that both parties contribute to, and withdraw from?

I'm pretty sure it's the same thing. (Well, not if each person's contributions exactly match their claims.)

My wife and I have a joint bank account and a joint investment account. The investment account earns us a fair bit of income, so I had hoped we could split that income 50/50. It makes sense right? We're joint holders of the account, and since we're married everything in the account is basically owned 50/50 by each of us, but that makes no difference to the CRA.

The money in the account came 100% from me, so as far as the CRA is concerned, all the income is mine too. Even if I gave all the investments in the account to my wife (put them in her account), CRA still taxes the income to me.

It's called income attribution and the CRA has lots of rules about it. But I'm no expert, so you can all go ahead and do as you please. Maybe Steve has it right with the lay-low-and-play-dumb-if-caught approach.