Tax Free Savings Account -Go open one!!

[foxfishfan]

If anyone is investing in a TFSA, don't do it as the interest rate is quite low. You can also buy a tax free gic which pays 1.6% for a 15 month term, for instance. Yes, the money is locked in for 15 months but the interest is 3x that earned leaving it in the account and is all tax-free.

[Reef_Geek]

Originally Posted by foxfishfan

If anyone is investing in a TFSA, don't do it as the interest rate is quite low. You can also buy a tax free gic which pays 1.6% for a 15 month term, for instance. Yes, the money is locked in for 15 months but the interest is 3x that earned leaving it in the account and is all tax-free.

TFSA is simply the status registered with the government. What you're describing is applying the TFSA status to GIC.

For example, my TFSA is a mutual funds account. I can choose to buy any mutual funds (offered by the financial institution where account is held) in this account so long as I do not exceed my contribution room. Additionally, you can have multiple TFSAs... for example, everyone has a cumulative contribution room of $25.5K ($5K/yr since 2009 and $5.5K for 2013), so you could have, say, $5K in a TFSA GIC, $5K in a TFSA mutual funds account with bank X, $5K in a TFSA mutual funds account with bank Y, $5K in a TFSA cash savings account, $5.5K in a stock trading account with another brokerage. You can withdraw at anytime and you will get your contribution room back (following year).

[Reef_Geek]

Originally Posted by Reef_Geek

... for example, everyone has a cumulative contribution room of $25.5K ($5K/yr since 2009 and $5.5K for 2013)

I should add... everyone who is a deemed Canadian resident for the entirety of each of those years will get their respective TFSA allowances.

I left Canada as a deemed non-resident, was working in the US as a biologist under NAFTA, and came back to Canada in 2008, and was a student... so I did not file a 2008 tax return. It seems (actually no surprise) that parts of our government do not talk to each other, so Canadian Customs and Border Patrol forms that declared my return at the border (with all my worldly belongings on file) never told Canada Revenue Agency... so I had to provide my landing documents, my bills, my bank statements, my driver's license and health card photocopies to CRA to show that I was indeed a resident in 2009, so that I have my TFSA allowance for 2009.

[Reef Pilot]

TFSA's are great for stock trading. All your profits are tax free, and makes it a lot easier to do your taxes in April if you are a frequent trader. And all capital gains expand your account, so you have more and more room to make some decent trades.

[Reef_Geek]

Originally Posted by Reef Pilot

TFSA's are great for stock trading. All your profits are tax free, and makes it a lot easier to do your taxes in April if you are a frequent trader. And all capital gains expand your account, so you have more and more room to make some decent trades.

I always wondered about that. Because I don't have time to research for day trading (given that I spend so much time on CanReef), I buy mutual funds and don't really churn the portfolio a whole lot.

So with a TFSA stock trading account... does it work like...

put $5K annual limit into the account, whatever stocks you sell aren't considered withdraws as long as you keep it within the investment cash account... and whatever else stocks you purchase using funds internal to the account aren't considered as further (over) contributions... even though your total holdings have grown from capital gains...

is this how it works with TFSA trading accounts?

[Reef Pilot]

Originally Posted by Reef_Geek

is this how it works with TFSA trading accounts?

Yes. Let's say that now you have 25.5K available in your new TFSA. You open up a trading account, and buy a stock for 20K. You were really lucky, and it doubles. Now you have 45.5K tax free room in you TFSA.

Of course, it can go the other way, too. If your 20K stock buy turned into a 10K sell, your TFSA room just dropped down to 15.5K.

But like I said for frequent trading, it is great (just like an RRSP account) where you don't have to declare all your cap gains (or losses), like you do in your regular taxable trading account. I use my taxable accounts more for longer term investments, and dividend stocks. Makes things a lot easier at tax time when you don't have so many transactions to enter in your computer (and all those avg cost calcs along the way).

And unlike RRSP's you don't get taxed when you take money out of a TFSA. So they are great for taking money out occasionally when you need it, and you don't get taxed for it. Then you just put it back, when you have more savings again.

[Reef_Geek]

Originally Posted by Reef Pilot

Yes. Let's say that now you have 25.5K available in your new TFSA. You open up a trading account, and buy a stock for 20K. You were really lucky, and it doubles. Now you have 45.5K tax free room in you TFSA.

Of course, it can go the other way, too. If your 20K stock buy turned into a 10K sell, your TFSA room just dropped down to 15.5K.

Bear with me here, I'm a bit slow.

Scenario 1. TFSA contribution room is $25.5K, and I put $20K into stocks under TFSA status. Got lucky and stocks now worth $45.5K.

1) My understanding is that I still have $5.5K of contribution allowed since I did not make use of it all to begin with. Correct?

2) My understanding is that, within the account, I can still churn the holdings without counting it against my contribution room. So for example, within the account total value of $45.5K, I can sell $5K of stock X, where the sales goes into cash holdings that stays within the account, and use that cash to buy $5K of stock Y, all without the government fining me for over-contribution. Is this correct?

Scenario 2. TFSA contribution room is $25.5K, and I put $20K into stocks under TFSA status. Got unlucky and stocks now worth $10K.

1) My understanding is that I still only have $5.5K of contribution allowed since I did not make use of it all to begin with. The depreciation of $10K in value does not add any incremental contribution room (ie doesn't mean I can add another $10K due to depreciation, just that if I actually sell and withdraw $10K, then I can re-use that room). Correct?