Financial Jungle

Good point about the US witholding tax. Isn’t that dependent on the Americans recognizing the TFSA as a legit retirement account?

FJ you know this will not be applied retroactively. They are giving this to us when they kill all the old age safety blanket.

But with that said I’m estatic about this fund.

This is similar to our (U.S.) Roth IRA. It’s really a great deal! Are there any income limitations (maximums)? The Roth’s maximum only allowed me to participate for 3 years ($3,000/year), but it continues to grow tax free. It is my understanding The Roth IRA withholds 15% on foreign dividends, so I have kept it U.S. only. I suspect your TFSA will be the same.

Best Wishes,
D4L

Why do we always get suckered into thinking saving money is investing? Now let me throw out a few names Warren Buffet, Bill Gates, Ted Rogers Jr., and Galen Weston. Why is the middle class told to work at a job, save and invest in bonds, mutual funds, RRSP? Don’t forget to buy overpriced real estate and pay that mortgage for 15 - 30 years. That somehow that is the way to financial freedom. Go back and look at the names I’ve listed above. Did they work at a job for 40 years and save money to become financial free? I feel like the government and banks are working against the people’s best interest.

Thanks for the link FJ. I doubt the TFSA will be able to beat the US withholding tax. My understanding of the withholding tax waiver is applicable only to pension accounts. So, unfortunately, I think we’ll pay the 15% withholding tax on TFSA investments.

The TFSA is simply a tool. Although the original intention is for short-term savings, I see potential in using it as a retirement account.

It’s not a requirement to buy just bonds and GICs inside TFSA. We’re free to invest in stocks. No tax is still better than capital gain tax, so I plan on investing in stocks and income trusts inside my TFSA.

By the way, I’m still praying for the governments to nix the 15% US withholding tax. I feel it can happen. US has some of the most fabulous international dividend paying stocks, and they’re cheap too.

I hope the provinces will recognize this. If the province will tax us on the dividends/capital gain in these accounts, then I’m not sure the TFSA will meet its objective.

Jimmy;

Ted Rogers Jr and Galen Weston ‘inherited’ their wealth from the fathers and grandfathers.

Warren Buffet is a buy a hold investor who would greatly benefit from a TFSA if he was a Canadian.

Bill Gates is the only entrepreneur in the list you mention ( I assume that is the point you were trying to make).

Investing ‘Tax Free’ is not always saving.. especially if the global markets are tanking.

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I’m surprised you haven’t talked about the dividend tax increases for this 2008 budget: http://www.reportonbusiness.com/servlet/story/RTGAM.20080227.wcarrick0228/BNStory/Business/home
… seems like your line of discussion.

Value Monkey - I’m being lazy :P.

I left my thought over at Canadian Capitalist’s blog. I’ll re-post here –>

This is meant to nullify the effect of lower corporate taxes, not to increase the overall tax burden on dividend investors. The combined effect of lower corporate taxes and higher dividend tax rates basically evens out at the end of the day.

An example with the 2nd [Federal] tax bracket:

2007
Corporate: $100 - $19.5 (corp tax) = $80.50
Individual: $80.50(dividend) - $3.542 (div tax) = $76.958

2012
Corporate: $100 - $15 (corp tax) = $85.00
Individual: $85.00(dividend) - $8.1855(div tax) = $76.8145

… or a reduction of 0.186% after tax. Nothing to mourn about.

Note that when you factor in a slower ascent to higher tax brackets due to a smaller gross-up percentage, the overall effect is basically zero. i.e. a 38% grossed-up dividend will hit the next bracket slower than 45%.

Corporations have the option of distributing all the tax savings to shareholders, or reinvesting back to the business for future dividend increases. Either way, nothing is gained or lost in the context of after-tax total dividend return.

[Furthermore, BC still has the most generous dividend tax credits in Canada. I haven’t crunched the numbers, but I’m guessing a British Columbian couple can still earn up to ~$90k tax-free in dividends, assuming they have no other incomes. In addition, the lower gross-up amount will help tame the criticism that dividends are robbing us of income-tested government benefits such as GIS and CCTB.]

Thanks for the quick response.

I’m just as lazy because I wanted to see what your thoughts were first.

Overally, I think its good that the government is reducing the corporate tax rates. This should help our Canadian corporations to be more competitive globally. I just wish that dividend investors (like me) didn’t have to pick up the difference. Of course, corporations that want loyal dividend investors will use some of this tax savings to increase their dividends, so this is some consolation. And with the new TFSA, I can try to further shelter some of this income although my ITs and bonds would be the first candidates for the TFSA since they still have a much higher tax rate.

I just wish they chose to make the system simpler. I think another type of account will not help most poor folks. It’ll just confuse them. In this confusion, banks and brokerage firms will be the ones to profit with their fees and hidden charges. I figure this will become the hidden TFSA “tax” that the poor will own.

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