# TFSA DRIP and reinvestment questions



## the-royal-mail (Dec 11, 2009)

OK I'm learning a lot about taking TFSA's beyond simple cash. I have two questions:

1. Understanding the effect of DRIP, focus on the R portion.

Does CRA consider automatic re-investments of dividends/returns in a TFSA as NEW contributions _*or*_ as sheltered growth? From what I've read, this point is not clear. The answer makes a huge difference.

Anyone here have a DRIP setup in their TFSA investment?

2. Withdrawals. There are two opinions I've read out there. I searched CRA's site and couldn't find the correct answer to know which of the opinions is correct. 

Scenario: TFSA $ of $10K grows to $21K and I withdraw the $21K today. I already know I cannot put the withdrawn amount back into the TFSA until 1-1-11.

Q. when 1-1-11 is reached, does this full $21K count as eligible re-contribution room or is it only the original $10K which is eligible to be recontributed to TFSA at that point? 

If yes to #2 it would seem then that the future contribution room available to TFSA holders is very much subject to individual "inflation" (bad choice of term I know) based on growth. With the passage of time, the "inflationary" contribution room available to some people could end up being formidable. Any thoughts on this? I bet the gov't of the future will notice this and want to close the loophole (if my thoughts are correct)...the amount of sheltered savings could cost the gov't $$$, in their view.


----------



## cardhu (May 26, 2009)

the-royal-mail said:


> Does CRA consider automatic re-investments of dividends/returns in a TFSA as NEW contributions


NO. 



> Anyone here have a DRIP setup in their TFSA investment?


I only DRIP inside registered accounts. 



> does this full $21K count as eligible re-contribution room


YES



> I bet the gov't of the future will notice this and want to close the loophole


There is no loophole ... if someone invests so successfully that they double their money in under 2 years, then they’ll have a bigger TFSA than someone who used it as a daily-interest savings account ... which is as it should be, no?


----------



## Cal (Jun 17, 2009)

the-royal-mail said:


> ...the amount of sheltered savings could cost the gov't $$$, in their view.


Technically the creation of the TFSA is costing the gov't money. Otherwise all of that investment $ would be taxable.

I wouldn't be surprised if at some point they cap the amount that you are able to contribute.


----------



## KaeJS (Sep 28, 2010)

I have my TFSA maxed and I DRIP it with a Monthly Income Fund. 

I couldn't be happier. 

DRIPs are key.


----------



## heffer (Feb 21, 2010)

Related to the OP's number 2 question, the gov't believes making too much money in your TFSA in a short time can _potentially_ be a loophole so there may be tax penalties. But assuming you don't over contribute or make unapproved investments then this should not apply to you. Just fyi tho

http://www.theglobeandmail.com/glob...-move-targets-savvy-investors/article1331028/


----------



## HaroldCrump (Jun 10, 2009)

heffer said:


> Related to the OP's number 2 question, the gov't believes making too much money in your TFSA in a short time can _potentially_ be a loophole so there may be tax penalties.


More than that, once the govt. figures out the tax revenue it is losing from seniors who have fat TFSAs and collecting full OAS or even GIS, they'll have to step in and impose some restrictions.
Hopefully, that time is distant in the future and in the meantime, keep building the TFSA.


----------



## Jon202 (Apr 14, 2009)

HaroldCrump said:


> More than that, once the govt. figures out the tax revenue it is losing from seniors who have fat TFSAs and collecting full OAS or even GIS, they'll have to step in and impose some restrictions.
> Hopefully, that time is distant in the future and in the meantime, keep building the TFSA.



I doubt it. Gov't already got their money on the buck going into the TFSA. Plus, having rich seniors in 20-30 years times means disposable income which means retail taxes (all those Buicks).


----------



## the-royal-mail (Dec 11, 2009)

OK so has anyone here tried to cash in their ETFs or other investments at Questrade and move/transfer the $ out of there to another bank or brokerage? Were there fees? How onerous was this process? Could it all be done online?


----------



## HaroldCrump (Jun 10, 2009)

the-royal-mail said:


> Could it all be done online?


Transfers for registered accounts cannot be done online (not yet, at least).
And I doubt if non registered accounts can be transfered to other institutions exclusively online, but it is technically possible.


----------



## Four Pillars (Apr 5, 2009)

the-royal-mail said:


> OK so has anyone here tried to cash in their ETFs or other investments at Questrade and move/transfer the $ out of there to another bank or brokerage? Were there fees? How onerous was this process? Could it all be done online?


Yes, I have.

You don't need to sell the investments - just "transfer in kind".

You need to set up an account at the new brokerage, then fill out a transfer form. They will contact Questrade about the actual transfer.

Yes, of course there are fees - look them on Questrade's website - probably $125/account or so. 

Ask your new brokerage if they will cover the Questrade transfer fees.

I think the transfer can be done online, but the account setup (if there is one) will probably require some docs to be mailed.


----------



## CanadianCapitalist (Mar 31, 2009)

the-royal-mail said:


> OK so has anyone here tried to cash in their ETFs or other investments at Questrade and move/transfer the $ out of there to another bank or brokerage? Were there fees? How onerous was this process? Could it all be done online?


I transferred my account out of Questrade a few years back. You can find the transfer fees from the fee schedule on Questrade's website. IIRC, it was on par with the big banks ($125 to $150). I moved the account to Waterhouse after getting TDW to refund the transfer fee.

I don't recall how long it took but it wasn't out of the ordinary (2 weeks or so). I don't think you can get a transfer done online. You need to sign the transfer form and submit it to the receiving institution (the latest account statement from Questrade will smooth the transfer). They'll take it from there.


----------



## the-royal-mail (Dec 11, 2009)

Thanks for the quick responses! Wow!

Wow quite the battle was waged online by dissatisfied questrade customers.

Maybe I'll take another look at TDW. Dunno. I haven't invested in any brokerages yet.


----------



## Four Pillars (Apr 5, 2009)

the-royal-mail said:


> Thanks for the quick responses! Wow!
> 
> Wow quite the battle was waged online by dissatisfied questrade customers.
> 
> Maybe I'll take another look at TDW. Dunno. I haven't invested in any brokerages yet.


Why are you switching? Didn't you just set up an account at Questrade?


----------



## the-royal-mail (Dec 11, 2009)

Account setup not completed as I didn't want to exceed 2010 TFSA. I have until the end of the year to decide. Yes I'm waffling. There was lots of bad press about questrade in the comments section:

http://www.canadiancapitalist.com/giving-up-on-questrade/


----------



## HaroldCrump (Jun 10, 2009)

There was a long, long thread about Questrade at the MS forum, where many of us used to hang out before CMF was created.
I'm sure you've probably come across that already in your google searches.
Anyhow, the long and short of it was that the hassle is simply not worth the $4 you will save on commissions and the trailer fee refund (_if_ you even receive it at all).
Then Questrade went through a year or so of PR and damage control to change their image.
Based on what I'm reading/hearing recently, there's been a marginal improvement, but still not worth the hassle.


----------



## Four Pillars (Apr 5, 2009)

I've never had any problems with them and I know a number of other investors who are also happy with them.

I'm not saying their perfect, but I think they are a good deal. I really think that people with less than $100k who pay $29 commissions at the big banks are making a mistake.

Regardless, make up your mind and make it happen with whatever brokerage you decide.


----------



## clark_danger (Jul 14, 2010)

I'm new at this so I dunno, but would you loose out on the ability to claim capitol losses inside a TFSA? why would the government have such a program at a time when they need revenue so bad? It seems like government is betting on a huge fast crash


----------



## the-royal-mail (Dec 11, 2009)

clark:

>I'm new at this so I dunno, but would you loose out on the ability to claim capitol losses inside a TFSA? 

Yes you would lose that ability. Capital gains are also not taxable. Two-way street.

>why would the government have such a program at a time when they need revenue so bad? 

The TFSA was introduced in 2008-09 when times were good and before the sky fell. Around the same time the GST was lowered to 6% and then 5% as part of the Conservative govenment's plan to allow citizens to keep more of their own money, in their own pockets.

>It seems like government is betting on a huge fast crash

Are there any typos here? Please rewrite.


----------



## clark_danger (Jul 14, 2010)

oh sorry
is the government expecting a big crash?
people with only a little money to invest would put money into TFSA before a non-registered account. And if there was a crash those people wouldn't be able to claim losses.
but I think I answered my own question. I just did some looking around and I guess you can't claim a loss unless you have a gain. therefore the TFSA is not a government conspiracy to make tax money on peoples losses


----------



## clark_danger (Jul 14, 2010)

I'm pretty sure the government was aware that there was an aging population about to retire and not enough money to support them long before the sky fell


----------



## the-royal-mail (Dec 11, 2009)

Yep I think you got it. At a savings rate of $5K per year, if young people start early they are going to build up tremendous reserves of cash that (by today's rules) the gov't won't be able to tax. Of course, future gov'ts will eventually run some reports and realize there are hundreds of millions of non-taxable $ sitting in these accounts and try to figure out a way to tax it. Just you watch.


----------



## Eclectic12 (Oct 20, 2010)

Cal said:


> Technically the creation of the TFSA is costing the gov't money. Otherwise all of that investment $ would be taxable.
> 
> I wouldn't be surprised if at some point they cap the amount that you are able to contribute.


There's no technically about it. This is what makes it different from say an RRSP which defers tax today in exchange for paying the top tax rate when it is withdrawn (and hence the need for the tax free compounding to make up for the bigger tax bite).

As for the cap - it's already defined. It's $5K per year and replacement the following year of withdrawals.


----------



## Eclectic12 (Oct 20, 2010)

heffer said:


> Related to the OP's number 2 question, the gov't believes making too much money in your TFSA in a short time can _potentially_ be a loophole so there may be tax penalties. But assuming you don't over contribute or make unapproved investments then this should not apply to you. Just fyi tho
> 
> http://www.theglobeandmail.com/glob...-move-targets-savvy-investors/article1331028/


Actually, I see it as two separate issues. OP's number 2 question seems to be be concerned about the "average" tax that the gov't is forgoing and whether future gov'ts will want it back.

The article is highlighting the steps the current gov't is taking to address a small group of people who probably don't need the TFSA in the first place.

One example is contributing $105K to buy a penny mining stock that doubles.
The old rules had a penalty of $1K per month until it's withdrawn. So if it doubles in two months, whomever sells, removes his $100K excess, pays a $2k fine and has an additional $100K tax sheltered.

On the other hand, it's perfectly fine to contribute $5K, buy the same stock, have it become $10K in two months.


----------



## Eclectic12 (Oct 20, 2010)

Jon202 said:


> I doubt it. Gov't already got their money on the buck going into the TFSA. Plus, having rich seniors in 20-30 years times means disposable income which means retail taxes (all those Buicks).


Plus there are all kinds of ways to get the money or more back in say user fees, based on ability to pay. If it's a user fee, it's not a tax, right? 

At the end of the day, the money going into the TFSA likely has already been taxed, so the only tax the gov't is forgoing is on the investment income.

For the more savy investor, this will be a fair amount but for people like my dad who insisted on GICs - Year 1 is $100, if he gets 2%.

What the real amount will end up being is not clear ... but it's probably not as much as some are thinking.


----------



## DavidJD (Sep 27, 2009)

I think it is very important to have items in your TFSA that are able to have high rates of return as soon as possible. It is worth the higher risk at the beginning since the limits are in place. Of course losses are losses but gains that are TAX FREE are too important to no gamble on.

I am sitting at $46,000 right now and just cannot relate to any advice directing people to settle for gains of 5% "tax free!"

Overtime I will reduce my risk level and get a comfortable diversification. What I am looking into now is what are the best investments within a tax free account - once tax implications are removed? At this point I plan to transition to a blend of dividend and high yield stocks that can create a tax free income.


----------



## the-royal-mail (Dec 11, 2009)

DavidJD said:


> I am sitting at $46,000 right now...


How did you do it?


----------



## DavidJD (Sep 27, 2009)

the-royal-mail said:


> How did you do it?


Bought (gambled) on a junior mining stock that had acquired an existing mine that had not been used in decades and showed lots of promise, and was poised to go quickly back into production. Took longer than I thought to increase in value but realize now my expectations were too ambitious. Stuck with it. Transferred in shares as soon as the TFSA came online which coincided with a brief 52-week low and then the ballooned up. Book value of $0.142 and today is at $0.65. Hit $0.79 a week or two ago (or $55,500m on paper). I am hoping to sell a bunch when they get to or 'near enough for me' at the $1 level. That would be over $70K in the account (not counting what I add in 2011).

I am not interested in killing out the golden goose (withdrawing it all) but rather taking some golden eggs once in a while to plunk into RRSPs, RESPs and taxable debt service charges (principle mortgage).

I have an alert with google for everytime TFSA is referred to on the web and so far all the articles are about the same things and same advice (use it as a savings account - GICs etc).


----------



## the-royal-mail (Dec 11, 2009)

Hi David, you are actually not alone and I've heard your message a couple times before, including offline. I am planning to using my TFSA as an investment account but not just yet. Right now, my TFSA holds my tier 1 money in cash at 1.25% interest. I know that makes you cringe, but my tier 2 account is currently empty due to a new car purchase this year. 2011 will be my year to restore tier 2 after which point I will start considering my TFSA as less-liquid tier 2 money, and I will invest it properly at that time. By that point, the cash that I am saving between now and 2012 will be built up in my savings account and that will actually be more fluid than TFSA is. That money will be considered my tier 1 money. 

Anyone is welcome to disagree with that savings account holding for tier 1 money as further discussion points. But if you do, please suggest better highly-liquid alternates!

Hope that plan is more agreeable to you (and others around here) than simply using TFSA to hold cash. I agree with your POV!


----------



## Eclectic12 (Oct 20, 2010)

DavidJD said:


> I think it is very important to have items in your TFSA that are able to have high rates of return as soon as possible. It is worth the higher risk at the beginning since the limits are in place. Of course losses are losses but gains that are TAX FREE are too important to no gamble on.
> 
> I am sitting at $46,000 right now and just cannot relate to any advice directing people to settle for gains of 5% "tax free!"


Congratulations!

However, I'm not sure 5% tax free is that bad when the average person who is ultra-conservative is aiming at 1% or less. Bear in mind that most of the free advice out there is aimed at the general masses who typically aren't that investing savvy.

IMHO, until the investment strategy, the specific investments and risk tolerance are all determined by the investor, it's not worth the gamble. Most of the people I know who are aiming for the big gain are almost always ending up with the huge loss. 

Another factor to consider is that if the loss in a taxable account, you may be able to use other money to buy your way back to even or worst case, reduce taxes on other gains. 

Bottom line is learn more each day and make sure you know what you are risking.


----------

