# What are some options for a person with roughly $150k in TFSA room but no cash?



## dicul (May 12, 2016)

Hi there,

I am currently a full-time unemployed student who had been a full time daytrader/investor previously. I currently have a TFSA contribution limit of roughly $150k but have no cash which I can use towards this. One problem is that I see myself in school for the next several years and wonder if there's something that could be done with the TFSA I have? Any ideas for how to make full use of this? Any and all advice would be appreciated!!


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## mordko (Jan 23, 2016)

You could marry someone rich and get her to put money into your TFSA account.

On a side note... Your daytrading must have been rather successful.


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## dicul (May 12, 2016)

mordko said:


> You could marry someone rich and get her to put money into your TFSA account.
> 
> On a side note... Your daytrading must have been rather successful.


That's a great idea but I already have a common-law partner that I love very much already. Daytrading was successful until mid 2014 then things went downhill and lead me into going back to school and starting from virutally square one. I'm lucky I still have tfsa contribution room! 

Any other ideas or comments anyone? Please don't be shy!


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## dicul (May 12, 2016)

Some more info that might be relevant:

The only debt I have is a car lease. I have about 20k in cash. 

Also, I didn't daytrade in my tfsa in case anyone is curious. I just made some well timed trades.


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## Eclectic12 (Oct 20, 2010)

dicul said:


> ... I am currently a full-time unemployed student who had been a full time daytrader/investor previously. I currently have a TFSA contribution limit of roughly $150k but have no cash which I can use towards this. One problem is that I see myself in school for the next several years ...


If you have no cash, how is there $150K of TFSA contribution room?




dicul said:


> ... One problem is that I see myself in school for the next several years ...


If you built up the TFSA contribution room by day trading ... you might have more than one problem.
http://business.financialpost.com/p...r-tfsa-being-targetted-by-cra?__lsa=81f7-6d8f

*Edit:* I see the day trading in the TFSA question has been answered ... which is good.




dicul said:


> ... and wonder if there's something that could be done with the TFSA I have? Any ideas for how to make full use of this? Any and all advice would be appreciated!!


To make use of the TFSA, you will need either cash or investments to contribute. (Though moving investments into the TFSA means any capital losses will be disallowed and any capital gains taxes will have to be paid ... so likely that's not a good idea.)


Cheers


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## OnlyMyOpinion (Sep 1, 2013)

Based on your comment that you _"have a TFSA contribution limit of roughly $150k but have no cash which I can use towards this"_, you must have built it up to $150k and then withdrawn it all? 
I wouldn't sweat 'refilling' it, you have the rest of your life to use up the contribution room. It's not worth trying to park your $20k of cash in it if you are going to be using it over the next year. Trying to use your TSFA as a short term saving account and tracking the ins and outs of it aren't worth it. 
You seem to be wondering if it would make sense to borrow the money to refill your TSFA or something like that. But how would you pay back the monthly loan amounts? I'd just focus on doing well in your chosen career and get to a point of having a good income, then begin to save again.


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## Eclectic12 (Oct 20, 2010)

^^^

The question seems more about what sort of risks can be taken to help out, IMO. The OP can clarify if I am misunderstanding.

The combination of likely needing the full $20K and not having other $$$ to take a longer view that can have more risk makes me think that using the TFSA as a short term savings vehicle is the only choice on the table.

I am curious about the "tracking the ins/outs of it" won't be worth it. Taxes saved are ... well, taxes saved. If it is anything like my TFSA savings account, the FI *is* tracking the ins/out on the monthly statement. It may only need the yearly adjustment to re-add the previous year's total withdrawals that the FI won't take care of for the OP. 

Does it really matter anyway? 
With only $20K of the total $150K TFSA contribution room to be used, the change of using up the full contribution room to generate a penalty seems remote.


Cheers


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## dicul (May 12, 2016)

Eclectic12 said:


> ^^^
> 
> The question seems more about what sort of risks can be taken to help out, IMO. The OP can clarify if I am misunderstanding.
> 
> ...


Thank you for your replies everyone!

I'm now wondering if it would be possible to borrow from the bank (or some other source) at a low rate and then reinvest it at that rate or better in a vehicle such as a GIC. From the banks/lenders perspective it would be low risk as the GIC is FDIC insured and could be used as collateral for the loan. From my perspective it could be worth it as I don't have any of my own money to invest at the moment anyway, and even though I wouldn't make a net profit, my TFSA contribution room would gain at a faster rate each year.


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## mordko (Jan 23, 2016)

Why not? If I were a bank I wouldn't lend you any money, but if you find someone that would...


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## redsgomarching (Mar 6, 2016)

dicul said:


> Thank you for your replies everyone!
> 
> I'm now wondering if it would be possible to borrow from the bank (or some other source) at a low rate and then reinvest it at that rate or better in a vehicle such as a GIC. From the banks/lenders perspective it would be low risk as the GIC is FDIC insured and could be used as collateral for the loan. From my perspective it could be worth it as I don't have any of my own money to invest at the moment anyway, and even though I wouldn't make a net profit, my TFSA contribution room would gain at a faster rate each year.


your tfsa room will still grow by the contribution room each year (5.5k) and you will not lose your previous contribution room. 
When you factor in inflation to your GIC purchase you would need a GIC that can; beat inflation and posts a either a break even return after you account for your loan interest rate.


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## mordko (Jan 23, 2016)

If he is borrowing to put money in GIC then inflation becomes irrelevant. Presumably he intends to max his room every year via extra borrowing. I just can't see anyone lending at an acceptable rate (i. e similar to GIC), but you never know.


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## redsgomarching (Mar 6, 2016)

mordko said:


> If he is borrowing to put money in GIC then inflation becomes irrelevant. Presumably he intends to max his room every year via extra borrowing. I just can't see anyone lending at an acceptable rate (i. e similar to GIC), but you never know.


how is it irrelevant? when talking about real rate of return this guy is losing purchasing power on these borrowed funds and paying more interest than the GIC is likely to give him.
your tfsa contribution room increases regardless.


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## mordko (Jan 23, 2016)

redsgomarching said:


> how is it irrelevant? when talking about real rate of return this guy is losing purchasing power on these borrowed funds and paying more interest than the GIC is likely to give him.
> your tfsa contribution room increases regardless.


Three scenarios:

1. He borrows at the rate that is lower than GIC. 

In that case he will make a bit of money (delta between the two sets of interests). The capital (depreciated by inflation) will have to be repaid in the end, but he gets to keep any excess interest from GIC. 

2. He borrows at the rate that is the same as GIC.

He will eventually repay the capital and any interest he makes on the GIC. Inflation is irrelevant because he started with $0 and ends up with $0.

3. He borrows at a higher rate.

Under this scenario in the end of the day he will be in deficit. In this case the higher inflation - the better because in real terms what he pays up in the end of the day will be less. 

While his TFSA contribution room will increase regardless, it will increase more if he were to max it out using a GIC.


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## Eclectic12 (Oct 20, 2010)

dicul said:


> ... I'm now wondering if it would be possible to borrow from the bank (or some other source) at a low rate and then reinvest it at that rate or better in a vehicle such as a GIC. From the banks/lenders perspective it would be low risk as the GIC is FDIC insured and could be used as collateral for the loan.


The problem is the low risk investments such as a GIC pay extremely low rates compared to what the financial institution (FI) is looking for. The run of the mill TFSA is paying something like 0.8% through maybe 2.5% while an asset backed loan is 3%+. It sounds like the only asset available is the cash you need to live ... so likely the FI will be looking at their loan products that have no assets back them, which means a rate more like 6%+.

Without a steady income, there is likely no way the FI is going to be comfortable that this setup will work in a way they will safely be paid back.

BTW, I think you mean the CDIC as it would quite the trick to get the US equivalent (i.e. the FDIC) to cover Canadian TFSA savings deposits. 




dicul said:


> ... From my perspective it could be worth it as I don't have any of my own money to invest at the moment anyway ...


This is why it won't work. FI's love to be sure there are other assets to pay them back, if one's financial situation and/or the investment goes bad. Unless you've got something hidden in the mattress that will reassure them, it is not likely to happen.

Investing in stocks would potentially give a chance for everything to work out ... but that is a risk the FI is not likely to want to take.




dicul said:


> ... and even though I wouldn't make a net profit, my TFSA contribution room would gain at a faster rate each year.


You'd go into debt to have more TFSA assets when you already have more unused TFSA contribution room than most other people?
Are you missing the forest for the trees?

I say "TFSA assets" as what would be growing is the assets in the TFSA ... not the contribution room. It won't become contribution room until there is a withdrawal and the calendar year changes. While it is nice to have the withdrawal to add to one's available contribution room, unless there is some other need for the $$$ or a temporary need for the bump up in contribution room the withdrawal provides - it is pointless.

The withdrawal becoming contribution room then putting it back is hurting, not helping. 

To illustrate, say one has $10K in one's TFSA with $0 contribution room available. One withdraws the full $10K in July. Now one has $0 in the TFSA, $0 TFSA contribution room and whatever growth is taxable. Jan 1st the following year, there is $0 in the TFSA and the $10K becomes TFSA contribution room. Sure, one has an addition $10K of TFSA contribution room but one had to get rid of $10K of TFSA assets ... there is no net gain here. It is simply a shift from assets held tax free in the TFSA to next year contribution room.


Cheers


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## Eclectic12 (Oct 20, 2010)

mordko said:


> Why not? ... Presumably he intends to max his room every year via extra borrowing. I just can't see anyone lending at an acceptable rate (i. e similar to GIC), but you never know.


There's more than just rates that make the "max his TFSA contribution room via extra borrowing" unlikely.


*Credit Rep Question ... OP response*
Occupation? ... student
Assets? ... $20K in cash
Income? ... $0
Loan Amount? .... $150K

Investment income ... $3K (assumed GIC at 2%)

Cheap interest cost ... $4.5K (asset backed at 3%)
LoC interest cost ... $12K (assumed at 8%)
CC interest cost ... $33K (assumed at 22%)



Cheers


*PS*

The other challenging aspect of trying to max the TFSA contribution room each year is that the annual allotment (i.e. $5.5K and eventually $6K) is going to require the loan expand yearly. Where one is already not able to cover the interest costs, this will add to the financial strain.


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## Eclectic12 (Oct 20, 2010)

mordko said:


> dicul said:
> 
> 
> > ... From my perspective it could be worth it as I don't have any of my own money to invest at the moment anyway, and even though I wouldn't make a net profit, my TFSA contribution room would gain at a faster rate each year.
> ...


Maxing out the full $150K TFSA with a 2% GIC is going to add $3K to the value of the TFSA, a year. 
Is the cost and effort worth it when one is already receiving $5.5K by meeting the criteria, with no loan costs?


Cheers


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## OnlyMyOpinion (Sep 1, 2013)

And, the interest you pay on a loan used to contribute to a TSFA is not tax deductible.


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## Eclectic12 (Oct 20, 2010)

To recap ... as long as one is willing to reconcile the withdrawals turning into contribution room the following year - using the $20K cash to contribute to the TFSA, having it grow as it can and withdrawing as needed to fund the studies is a no risk way for some growth to happen. If one can cut costs or get part time work that does not interfere with the studies ... maybe the growth is improved and/or maybe a bit more risk can be taken.

Taking out a loan (assuming one can get it) where the growth isn't covering a significant portion or all of the interest costs is going to add to the financial burden while going to school.


Given that the OP is already ahead of the TFSA contribution room granted by the gov't by $100K+ or more ... if the period of being a student is short, it may be more worthwhile to focus on the education plus ensuring a job in a career one enjoys versus what little that a loan would add to the pot.


Cheers


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## mordko (Jan 23, 2016)

Have to agree that under most scenarios borrowing to invest into a GIC just to raise your contribution room seems a bit crazy - unless I am missing something.


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## Mechanic (Oct 29, 2013)

I would suggest just waiting till you are employed and are able to save and put some money away. I wouldn't borrow to invest as your investment could do poorly and interest cost you more than you make. The room will be there when you need it.


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## dicul (May 12, 2016)

Thank you for the thoughtful replies all of you. I agree that taking on additional risk just to grow contribution room (when it already is growing at 5,500/year) is probably not worth the risk or trouble. I guess I was just hoping there might be some other options out there.

I will be in school for the next couple years and will focus on doing well so I can get a decent paying job and invest again.

All the best everyone!


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## humble_pie (Jun 7, 2009)

i've always believed that someone should startup a business that would link challenged canadians who have large TFSA room but they cannot use it for one reason or another, with other canadians who've already maxed their TFSAs & run out of family members to whom they can donate extra TFSA destined funds.

in such a startup, both the challenged canadians & the rich canadians would benefit. 

put another way, if only a small proportion of canadians are utilizing TFSAs, then there have to be millions & millions of canadians over the age of 18 who aren't. What about all their contribution rooms? there must be gazillions of $$ that could be sheltered in all those unused potential TFSA contribution rooms.

enter the angel investor who invents the startup that put all these folks together. Our OP dicul has $150k in TFSA contribution room that is lying fallow. Some enterprising financial institution could develop a platform that would inject $150k, capital that would essentially belong to other persons. Capital that would revert to the TFSA co-partners in the end.

the partnership could have a maturity date plus other terms that would allow flexibility.

me i see this as a way to help eradicate poverty while adding a happy glow to all canadians .:biggrin:


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## redsgomarching (Mar 6, 2016)

humble_pie said:


> i've always believed that someone should startup a business that would link challenged canadians who have large TFSA room but they cannot use it for one reason or another, with other canadians who've already maxed their TFSAs & run out of family members to whom they can donate extra TFSA destined funds.
> 
> in such a startup, both the challenged canadians & the rich canadians would benefit.
> 
> ...


uhm...lol


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## humble_pie (Jun 7, 2009)

redsgomarching said:


> uhm...lol


well we elected Justin Trudeau, didn't we


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## james4beach (Nov 15, 2012)

This is an interesting thread and an interesting question. You probably are best off patiently waiting since your 150K room isn't going anywhere.

Now let's try to get a little crazier... warning this is bizarre and unorthodox. Is your goal to make use of your 150K room, even though it means no net profit for you?

I think humble_pie may be on to something. *Can we accomplish this by rolling your own over-the-counter (OTC) derivative?* This would be a signed, legal contract you open with someone. Or several people. Whether or not you can find someone to engage in this would be interesting, and probably of interest to academic scholars and entrepreneurs. And angel investors. Personally I would approach wealthy people with an entrepreneurial leaning.

The contract could look something like this. The following is a thought experiment and does not constitute advice, and may be totally wrong from a tax perspective:

-----
This contract is between _dicul_ and _other_.
_other_ is giving _dicul_ an interest free loan of $50,000.
_dicul_ shall do precisely the following with the money -
1. the amount shall be invested directly into a 5 year GIC from _issuer_ inside a TFSA
2. _dicul_ must furnish monthly statements proving the holding in their TFSA
3. At 5 years, _dicul_ shall repay the loan amount
4. _dicul_ shall provide _other_ a gift which equals the excess value
-----

What's in it for _other_? They get a completely tax sheltered GIC as good as if they used their own TFSA. They know exactly what it's invested in, a safe CDIC insured GIC. There's transparency that shows where the money is, and they can always sue _dicul_ if there's a contract breach. _other_ may worry, though, about _dicul_ declaring bankruptcy or fleeing the country.

What's in it for _dicul_? Whatever the original intention was, which I don't quite understand. No risk to _dicul_ unless the GIC issuer defaults and CDIC takes a long time to return the money (in which case _dicul_ would need to come up with the money to repay the loan).

The GIC investment is possibly not lucrative enough to entice _other_ to engage in this contract. Variants may be a stock-indexed GIC (using GIC + XIU call option) or short term bond ETF like XSB, CLF, XSH

You'd need some good tax advice to figure out whether step 4 is legit. There must be some way to do it; Horizons swap based ETFs do something like this.

Warning: none of this is worth the effort.


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## james4beach (Nov 15, 2012)

By the way - if someone I trusted came to me pitching this ^ kind of contract with XSH as the underlying (2.9% annualized return in last few years), tax free, I'd seriously think about agreeing to it.

Find yourself a few of those at 50K a pop, and you've got your 150K and are helping out the counterparties!


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## redsgomarching (Mar 6, 2016)

james4beach said:


> By the way - if someone I trusted came to me pitching this ^ kind of contract with XSH as the underlying (2.9% annualized return in last few years), tax free, I'd seriously think about agreeing to it.
> 
> Find yourself a few of those at 50K a pop, and you've got your 150K and are helping out the counterparties!


might as well make it easier and just say tfsa are now open for spousal contributions or add subscribers to the tfsa plan like the RESP.


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## humble_pie (Jun 7, 2009)

redsgomarching said:


> might as well make it easier and just say tfsa are now open for spousal contributions or add subscribers to the tfsa plan like the RESP.



but like i mentioned, this special plan is for rich canadians who've already maxed not only their own TFSA but the TFSAs of all their family members ... ie it's for folks who've run out of cooperative relatives . :biggrin:


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## humble_pie (Jun 7, 2009)

james4 thanks for your effort. I wonder whether my idea might, ever so faintly, be worth pursuing.

at the embryonic stage, though, i think it might not be so helpful to think about final investment products. I think it's more productive instead to consider what a) TFSA Owner would need to receive from the deal & b) what Lender/Other would need to receive from the deal.

i think there'd have to be a financial house as intermediary. Il va sans dire that safety of capital would have to be built into the schematics.

jas4 in your model there didn't seem to be any return for Dicul. But obviously he wouldn't do this out of the goodness of his heart. There'd have to be some return, distributed to the TO on a regular ongoing basis, from this vehicle.

as for the rich LO, his return would have to be slightly greater than what he would net, on an after-tax basis, from owning the same ultra-safe investments outright in a taxable account.

in my mind's eye i don't see any funds accruing for 5 years that would be gifted to either participant. Instead i see a small return being dribbled out to both parties as time passes. I like the 5-year term limit, though.

the incentive for the financial house is that, although it would be costly to develop the prototype, the model could be profitable if it were implemented on a wide scale.

what would be the advantage to the ministers of finance, who would be losing the taxes otherwise payable by LOs?

one could argue that the financially-challenged TO would use his income from the product to better his life, thus keeping him off welfare roles & furthering his financial independence.

in a way, the concept has some parallels to the US system of tax-free municipal bonds. Rich americans invest in tax-free munis for obvious reasons. Thus the municipalities obtain a source of capital with which to improve the hard-core infrastructure of their urban environments.


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## james4beach (Nov 15, 2012)

Right, in my model the TFSA owner gets nothing out of it. In fact they end up with a potential liability to make good on the loan principal.

It's tough to envisage a scenario where both sides can get something out of this, unless they go through a clearinghouse kind of central thing.

Realistically the TFSA owner should get an MER % type fee (vs assets under management) whereas the lender gets, of course, pure tax sheltered investment.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... It's tough to envisage a scenario where both sides can get something out of this, unless they go through a clearinghouse kind of central thing.


If there is a central clearinghouse, is it likely the government will quietly observe while 3rd parties make use of another's TFSA, dropping tax revenue?

Cheers


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