Without a Map

[mode3sour]

In case anyone is interested, I did some more digging on the dividend tax credit. Turns out the advantage of holding these in a non-reg account has disappeared, because the government has been reducing the "gross-up" that you apply to your dividend income before subtracting tax from it.

Good find there. A saying we have at work is to always "trust but verify" which is what you've done here. I was not aware of these recent changes as I have been more leaning towards options on margin in non-reg lately. In my post though, I was not encouraging non-reg over TFSA but simply that you should plan to put the least taxed investment non-reg assuming your TFSA would be maxed. (My point was more that Cdn dividends are taxed more favourably non-reg than say US - however if cap gains are taxed less now I believe they are taxed favourably regardless of country) I agree about keeping HISA non-reg (that's what I do) Like you said you can always top up the TFSA and withdraw before 2013 (I've set up an auto withdrawal on ING in previous years, saved maybe $25-$50 in taxes for a few mins of clicking)

Mode, I'll still have to join the mortgage culture if I do invest in farmland. I'd like to stay flexible, as you suggest, but that means missing opportunities that don't come around often. If my brother and I want to expand beyond the land that is already in the family, we'll have to chase after any sale we find - there is plenty of competition around here from other farmers.

This of course pushes prices up, along with upward pressure thanks to the "Alberta Advantage." The sad part is that, at current prices, land isn't cash-flow positive except in very exceptional years. We'll have to subsidize the business unless land prices miraculously drop, or grain prices soar. Like you, I believe that Canada's in a housing bubble at the moment, but I'm not sure if a decline in housing prices would also mean a decline in farmland prices - and of course that may not happen until after we've bought some land!

I feel like I'm talking myself out of it... I have mixed feelings about it. What it comes down to is, it is a good investment for the very long term, but would require sacrifices for the medium term to make it work. It's the same old farmer's story... you're poor for most of your life, until you retire... then you're rich.

My family has also expanded their farmland since the initial plot was granted to them by the Queen (and the err Micmacs) Farmland imo is one of the most stable investments long-long term. The population of any organism increases exponentially (barring any lack of resource or intervention) therefore the demand for food can increase exponentially in theory. I don't think it's directly tied to the RE market as it has it's own global and political factors etc. Farming is a lot like buying RE though imo it is a lifestyle choice in the end rather than a pure rational investment like stocks. I like owning physical farmland because you can always grow your own food if the sh!t hits the fan. When/if Canada realizes the this, our farmers will be in much better shape as well. I agree with you long term gain medium term pain. You just have to weight the pros and cons with your own lifestyle, and see what opportunities come along.

[Causalien]

Wow, did not see this dividend adjustment coming.

It seems like our tax policies are following all those that are being proposed in US congress at the moment except, Canadian's don't make a big fuss opposing the propositions. I am not impressed.

This probably hints at the fact that these same measures will eventually be passed in the US.

Still, they are better than no discount?

[Causalien]

Just found this table: http://www.taxtips.ca/dtc/enhanceddt...eddtcrates.htm

Which suggests that the actual tax rate are dropping while gross up is also dropping? Someone else confirm.

[mode3sour]

Yea I had to wrap my head around this as I'm doing my taxes now (and only missing the T5 with the income in question..)

According to what I gather, it really depends what province you're in and what your total income is. The grossed up dividends can count against your benefits or put you in a higher bracket if your income is on the edge, but for many people I think Cdn dividends are still tax favourable

In Alberta in 2011, the marginal rate of eligible dividends is 17.72% versus 27.71% for ineligible dividends.

1. Just be happy the corporations put all the numbers in the T3 and T5 boxes, since it is complicated.
2. I have my flight booked to move to Alberta, since you are far better off living and paying taxes in Alberta than Ontario.
3. Most importantly, you will prefer to receive eligible dividends rather than ineligible dividends.

http://www.boomerandecho.com/dividen...dit-mechanism/

[Barwelle]

@Humble, Mode:

Oh yes, I see what you mean now. Keep things simple. Eventually I'll have a few different plans for the money I have in Questrade, but I'll only have the one TFSA account, well up until the point where I'll have an RRSP in there too. On the other hand, for my HISA which is in ING, I did open a couple different accounts anyway, each with their own automatic savings plan, just cause they make it so darn easy!

To put cash in a TFSA this year to use up contribution room, I'd get an extra 0.5%. Which would amount to $20. So a total of $80 interest, tax free... if they hold the 2% rate they have. Stellar, huh? But, like you say, Mode, it only takes a couple clicks to do. I do keep track of my TFSA contributions in an Excel spreadsheet though, that makes it a lot easier to know where I'm at.

MDJ actually did an update on the dividend tax credit a couple days ago. So as Causalien says, it appears to be because corporate tax rates have been dropping. Yes, I'll be putting my dividend payers (and all investments) into TFSA.

@myk0:

Thanks for the comments, I see you started your own diary too. I'll be sure to keep up with yours as well.

@Mode:

Farming certainly is a lifestyle choice. And I've thought of that idea too... if anarchy ensues some day, at least I can live in the farmhouse, heat the place with wood, and grow my own potatoes! City folk wouldn't be so lucky. Of course, that is only possible if all our food hasn't been modified with terminator genes. THAT really, really bothers me.

Any idea what farmland is worth back home? Around here, for good land, it's going for $3,000 an acre. You'd be really hard-pressed to find anything for less than $1,900/acre, within reasonable distance. My area is more tied to the RE market because we are within commuting distance of Edmonton, so a lot of acreages have been developed in the last 10-15 years. Acreages go for $15,000-$25,000/acre for bare land depending on services and location, so you can imagine how that would increase the cost of farmland. Some guys will buy a quarter-section then subdivide and sell an acreage just to recoup some of the cost, but then the fact that you can expect to be able to do that puts upward pressure on prices in the first place.

Some states in the US have it worse. I read an article a few weeks ago in a farm newspaper that some land in Iowa was going for... $10,000/acre? I think? And this recession did very little to slow down the rise in prices. Unreal. On the flip side, an adventurous person could hark back to the frontier days of Western Canada by going to Brazil, where land is $100/acre. Though you'd be contributing to the destruction of the lungs of our dear planet. *shudder*

[Barwelle]

Well, it's about time I update this.

In April, after three months of working at this company, I got a raise. This inspired me to change my savings plan a tad, to avoid "lifestyle inflation." I'm going to live as if I'm making $40,000 on my original plan, and all extra income on top of that (after taxes, and travel and retirement savings) will go towards house/land. So at my current income, I'm saving about 24% pre-tax towards house/land. Man, that number looks good.

And instead of sending 5% play money each paycheque, I just put $10,000 into Questrade TFSA (most of which used to be mutual funds) and called that my limit for individual stocks/etfs not tied to retirement. If I see money piling up in my daily savings (which I expect to), I'll add even more towards house/land.

Also, last week I re-balanced my e-Series funds. Markets were almost at their lowest in the past several months so I took advantage by adding $375 (about 12% of the market value of the portfolio).

[mode3sour]

As far as I know farmland is still relatively cheap our east, as is the RE. The problem is if you actually want to farm the land you need to buy dairy quota which costs a lot more. I never looked into it very seriously, but I know friends starting out have crunched the numbers and are left very frustrated. Most of my older cousins moved to Ontario long ago, and nearly all my other brothers/cousins have moved to Alberta now. Some with various engineering/college degrees relearning to wield etc. The oil tycoons desperately want to buy up the military owned land in Alberta, and the military has a serious issue now with soldiers priced out of the market. I'm buying up beaten down farming stocks in Brazil, but I look at it as a pure gamble because I don't know much about their situation. Congrats on the raise and being able to save it, I think starting with that mindset can make a huge difference some day!

[humble_pie]

i'm thinking about posting a new serial story.

this one will be set in the year 2062.

mode, well past the age of 70, sets out on his motorcycle from his giant ranch in brazil to visit his old friend barwelle in northern alberta. He & the bike will travel by ship from caracas to texas.

as for barwelle, at 72 he is the lord of 46,000 acres, some of which include oil wells.

it's an on-the-road story.

[Barwelle]

This new concept sounds intriguing, humble. I've enjoyed your Alice stories, though it seems you've cut back lately. And I must admit, some flew over my head. Oh, to have 46,000 acres, and a friend who could still travel immense distances by motorcycle in his 70's!

It's interesting to see/read others' takes on Future Earth. Apocalyptic? Utopian? This is probably beyond what you were thinking, but one of my favorite types of books is the kind of science fiction that deals with alternate realities, or dystopian future versions of our world. Stuff like Margaret Atwood's Year of the Flood, and Oryx and Crake, Terry Brooks' Armageddon's Children, and even the Hunger Games trilogy. Looking forward to reading this book, which I just ordered online.

Well, that was sufficiently off topic. I once scolded someone for getting off topic in a money diary... oh well.

I don't entirely understand the dairy quota system. It doesn't make sense to have to pay to produce a product. I mean, of course there are expenses in any business (labour, materials, location/buildings, taxes, etc), but I don't go to Canadian Tire demanding that they pay me for the privilege of having me as a customer.

You bring up a good point, the oil/gas leases around here also push up the price of land. When you say that soldiers are being priced out of the market, you mean soldiers who are moved to / stationed in AB who are looking to buy housing? Doesn't the military provide housing on base?