# Which demographic would you say is the greatest benefitter of TFSA?



## techcrium (Mar 8, 2013)

I would have to say it is the frugal, young, low income type:

1. Turned 18 right when TFSA was launched,
2. Doesn't make alot of money
3. But enough to contribute the entire $5,500 each year
4. Cannot fully utilize RRSP due to low income


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## wendi1 (Oct 2, 2013)

Not older, frugal, soon to be retired folks?

1. RSPs maxed out or almost.
2. Otherwise the income from the investment would be fully taxed.
3. Money pulled out from TFSA does not affect GIS or OAS eligibility (or pensions).
4. Can continue to use TFSAs after retirement.


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## sags (May 15, 2010)

Wealthy people who can afford to fund the TFSA for all their kids and families.


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## RBull (Jan 20, 2013)

wendi1 said:


> Not older, frugal, soon to be retired folks?
> 
> 1. RSPs maxed out or almost.
> 2. Otherwise the income from the investment would be fully taxed.
> ...



This. :encouragement:


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## Westerly (Dec 26, 2010)

Maybe it's easier to ask who does it help the least. Based on the list above, that would appear to be (surprise) the middle-age, middle-above average wage earners. Priorities are on kids, mortgages. and RRSPs if there's any $$ left over. That describes us. Although we do contribute to TFSA (and want to focus more on it) I think we are probably bucking the tide in our income / demographic category. I'm happy it's there and will benefit more from it in perhaps 10 years.


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## Ponderling (Mar 1, 2013)

I am planning an early retirement and plan to gently melt the overly large RRSP for almost 20 years to the tune of pulling about $30K reguarly per year until it becomes RRIFtime. 

5.5K of the melt wili be going straight into my already fully funded TFSA. 

Then I decide when I want to spend it instad of a big RRIF pouring money at me that I will not necessariliy need to spend every year. 

My kids, now 11 and 14 will have the potential to turn a TFSA into a mammoth thing. 

I cannot beleive that the vehicle will really not be screwed with over the years though.


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## Oldroe (Sep 18, 2009)

The I got the least from TFSA. It was announced in the budget and 10 days later I retired.


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## OhGreatGuru (May 24, 2009)

sags said:


> Wealthy people who can afford to fund the TFSA for all their kids and families.


I agree, and when the public figures that out they will hopefully force the government to cap TFSAs somehow.

Most people below median income don't have enough disposable income to put much (if anything) in a TFSA, and they are in the lowest tax brackets. A lot of people above median income don't have the disposable income either, because of mortgages, education cost for children, and consumer debt. It's the well-to-do who get the most benefit because they have the disposable income and are in the highest tax brackets .


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## wendi1 (Oct 2, 2013)

Who benefits the least? The people who, for whatever reason, don't use them.


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## fraser (May 15, 2010)

I think that they are a great savings vehicle. Cap them?. I hope not. 

They are an excellent vehicle for retirement saving. Fewer and fewer people have pension plans. This provides additional room for saving. The Government wants us to save.....less GIS and OAP to be paid out in later years


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## andrewf (Mar 1, 2010)

Low income people don't benefit all that much. They face low marginal tax rates, and most of them don't really need to save much for retirement because they can expect GIS/OAS/CPP.

Biggest beneficiaries in $ terms are those that face the highest marginal tax rates and have the money to fully utilize their contribution room. This is 10x true for the proposed doubling of TFSA contribution room per year.

TFSAs are going to cause a lot of tax fairness/equity issues in 20 or 30 years.


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## none (Jan 15, 2013)

I really do think that TFSA are terrible from a class equity perspective. Yet another hand out to the people who don't really need it. Classic Canada.


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## Nemo2 (Mar 1, 2012)

none said:


> I really do think that TFSA are terrible from a class equity perspective. Yet another hand out to the people who don't really need it. Classic Canada.


Perhaps they could set up a program wherein if you don't have any money you're free to invest it?


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## Charlie (May 20, 2011)

got to agree they're a gift to wealthier people. The challenge for those struggling to save for retirement wasn't a lack of savings vehicles -- it was a lack of funds (or will).

With no restrictions on withdrawals, not even a loss of contribution room, these really just exempt a growing amount of investment assets from tax rather than encourage those who wouldn't otherwise save for retirement to do so. Lower income people may be marginally better off vs RRSPs, but not significantly given lower tiers of tax and lower tax on investment income (a really low income person could have earned a whole bunch of dividends without any tax at all). And it really messes up the consistency of clawbacks and eligibility for GIS, OAS, GST credits etc.


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## GoldStone (Mar 6, 2011)

TFSAs are a gift to the public servants. They have their DB pensions. They don't need another retirement vehicle.

Some of them know it so they use TFSA to gamble on penny stocks. Retirement is completely secure, so why not?

Remember the guy from MoneySense with a $300,000 balance?


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## WillyA (Apr 14, 2011)

To a certain extent it benefits young people who were around 18 to 20 at the announcement as they would have lots of room by the time they finish university, pay down student loan and so on to invest some of their after university job earnings.

Of course it provided instant benefits to wealthy people who had money to put in it right away


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## dsaljurator (Jan 12, 2012)

They are of the greatest benefit to anyone that can reliably fund them fully year after year, or who will eventually become able to fully fund them. 

I think the goverment is going to seriously regret having offered them in 10 to 20 years, if they aren't already figuring it out, for the simple reason that that vast majority of kids these days are *never* going to pay any capital gains taxes.


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## fraser (May 15, 2010)

It is unclear to me why TFSA's are a gift to civil servants. 

I think they provide an opportunity for everyone. And yes, people in higher tax brackets do receive a higher dollar benefit but that is true of many programs including RSP's. 

And if you do some research you will find that that those in the top 10 percent actually provide the lions share of revenues derived from income taxes.

The stats on RSP and TFSA useage are not that great. It seems to me that the numbers are in the 15-20 percent range. Could it be they are the inverse of the growth of our consumer debt? 

I suspect that that are many people who could take advantage of these programs if they either cut down on spending or took the time to plan for their respective future retirement needs.


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## OhGreatGuru (May 24, 2009)

GoldStone said:


> TFSAs are a gift to the public servants. They have their DB pensions. They don't need another retirement vehicle.
> ...


_"TFSAs are a gift to the private sector. They have their RRSPs (& CPP). They don't need another retirement vehicle."_

Makes just as much sense as Goldstone's non sequitor, don't you think?


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## Koala (Jan 27, 2012)

Depends on what you mean by benefit. In terms of just overall value, those who make a large income, and are able to max it out from the age of 18 or get lucky by multiplying their principal quickly with their investment.

In terms of standard of life, those who would lose out on GIS & OAS by using an RRSP, and are able to put away a decent amount into their TFSA each year.


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## Canadian (Sep 19, 2013)

dsaljurator said:


> I think the goverment is going to seriously regret having offered them in 10 to 20 years, if they aren't already figuring it out, for the simple reason that that vast majority of kids these days are *never* going to pay any capital gains taxes.


That's assuming the _entire_ younger generation is aware of TFSAs, how they work, and opt to use them. Think how under-utilized RRSPs are among all generations and they have been around for years.


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## nortel'd (Mar 20, 2012)

sags said:


> Wealthy people who can afford to fund the TFSA for all their kids and families.


How about a single Canadian with a decent DB and CPP pension who will never benefit from pension sharing. 

Funding my daughter's TFSA with dividend paying stocks since 2009 is a great way to transfer to her a bit of my assets without consequence (does not raise her taxable income). My daughter is trying to raise a family, pay off a mortgage and fund her RRSP. Her employer and she contribute to a DC pension and I fund her TFSA as long as she covers her RRSP.


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## uptoolate (Oct 9, 2011)

Maybe the heirs of those who have the ability to fund them and then not draw them down. Unlike an RRSP of which almost half is taken away at death of the last parent, with TFSAs their is no government bite.


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## OhGreatGuru (May 24, 2009)

Conservative MPs. Not only do they have the discretionary income to take advantage of TFSAs, they claim political points for introducing a tax-break for the average hard-working Joe/Jill, which in reality disproportionately benefits the well-to-do.


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## GoldStone (Mar 6, 2011)

OhGreatGuru said:


> _"TFSAs are a gift to the private sector. They have their RRSPs (& CPP). They don't need another retirement vehicle."_
> 
> Makes just as much sense as Goldstone's non sequitor, don't you think?


No, I don't think so. 

RRSPs are the poor cousins of the public DB pensions. Let me count the ways:

No match by the taxpayer.
No professional management at a near-zero cost.
No guarantees. 

Your retirement is at the mercy of the capital markets. If you need professional help, be prepared to pay through the nose at exorbitant retail rates.

Do you remember what it felt like to open your RRSP statement at the end of 2008 and see a 40% drop?? Of course you don't. As a public employee, you couldn't care less. DB pension guarantee is priceless.

I stand by my assertion. Public servants do not *need* TFSAs. Their retirement is already fully secure.

OTOH, pensionless private workers need all the help they can get. TFSAs are not the best solution, by the way. They don't address the major shortcomings of the RRSP scheme: lack of low cost professional management, and absence of guarantees.


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## Westerly (Dec 26, 2010)

The biggest shortcoming of the RRSPs may be that they are not forced. My pension contribution comes off my paycheque whether I like it or not every two weeks. My spouse and I contribute roughly $1,400 per month including CPP (the employer matches.) Similar pensions for private workers would be great but they would likely see their pay drop by the equivalent of 15-20% (after employee and employer pension contributions.) And then they would have to accept that they or their estates may never see anywhere near to equivalent of the value of the contributions. In light of that, I can see why some of our private-sector neighbours (performing roughly the same level of occupation) are living so much higher than we do: new cars, time shares, 2-3 holidays/year.

The TFSA is not widely used and the true benefits will go to a few on here, hopefully me, and the rich.


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## savvybuck (Feb 12, 2014)

Hey, this is a great topic actually. 


I did an analysis and it is true that if you are low income, you would benefit the most. In fact, TFSA is the only tool that could propell you from "working class" to a middle class simply by saving hard and investing diligently


http://savvybuck.com/2014/02/12/who-benefits-from-tfsa-the-most/


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## RBull (Jan 20, 2013)

GoldStone said:


> No, I don't think so.
> 
> RRSPs are the poor cousins of the public DB pensions. Let me count the ways:
> 
> ...


Good answer. I agree 100%.


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## Sherlock (Apr 18, 2010)

nortel'd said:


> How about a single Canadian with a decent DB and CPP pension who will never benefit from pension sharing.
> 
> Funding my daughter's TFSA with dividend paying stocks since 2009 is a great way to transfer to her a bit of my assets without consequence (does not raise her taxable income). My daughter is trying to raise a family, pay off a mortgage and fund her RRSP. Her employer and she contribute to a DC pension and I fund her TFSA as long as she covers her RRSP.


Can you adopt me? I never got a cent from my parents.


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## Westerly (Dec 26, 2010)

I think it's a good answer too, but to what question? If the TFSA should be offered to people on a *needs* basis, why stop with public servants with DB pensions? In fact why focus on that at all? Public AND private pensions, principle residence, real estate rentals, cash-acct investments, RRSPs, CPP, OAP, inheritance. Why not cap TFSA based on an income and capital means test. Have XXX amount going into retirement and all TFSA withdrawals are taxable. Like pensions, have TFSA and RRSP balances go into general public coffers on death.

I've seen no evidence to suggest that public servants are in some way accessing the TFSAs any more or less than any other sector of our working class - other than, of course, all the gambling they're doing in penny stocks.


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## fraser (May 15, 2010)

Here is a tool to see the difference between RSP's and TFSA's. You can also use it to calculate the actual TFSA tax savings in various tax brackets if you change the income level.

https://www.retirementadvisor.ca/retadv/apps/tfsa/tfsa_inputs.jsp?toolsSubMenu=investment


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## m3s (Apr 3, 2010)

GoldStone said:


> No, I don't think so.
> 
> RRSPs are the poor cousins of the public DB pensions. Let me count the ways:
> 
> ...


You conveniently forgot the bit about no restrictions on investment gains? As already discussed, nobody wanted a DB pension when the markets are going well. So you want to increase the CPP then? No one will vote for that will they

I am envious of those who were 18 or younger when the TFSA was introduced. By the time they are 25 they could have 38k TFSA room and growing. TFSA is very flexible and simple tax-wise. That extra room would eliminate my non reg account


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## RBull (Jan 20, 2013)

^I guess I missed the part where "nobody wanted a DB pension when the markets are going well". 

If I had the opportunity for a public DB pension knowing what I do now, I would have grabbed it in a heartbeat, *even when markets are doing well*. My wife has a government pension and even with her penalty(early retirement) the commuted value is well beyond what we have been able to do with savings, even with me starting saving at age 22. A professionally managed pension is going to beat most any small investors return, with lower cost, no work, and almost no worry. 

I agree young people today have a great opportunity with the TFSA. What many are lacking however, like much of the general population, is the discipline and knowledge to make good use of it.


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## fraser (May 15, 2010)

I did not like the drop in my investments at the end of 2008. But I certainly like the gains that I have realized since that time, most especially so over the last two fiscal years. They have erased that tragic outcome of the past.

In 2000 I was working for a company that provided some employees with the option of remaining in our DB plan or moving to a DC plan. It was the high tech boom, getting a seven percent return was considered average- many were getting 10 and 15 points with little effort. And we were in a high tech industry.

The majority of my peers selected the DC option-for three reasons. First, they felt that the DB plan was unattractive because of the low implicit returns. Second, they felt that they could easily get 7-10 percent per year for foreseeable future and thus surpass the DB plan benefits. Thirdly, they wanted to select and manage their own investment strategy instead of being stuck in a stodgy DB plan. Some others were blinded by the cash out payments. At that time people were clamouring to get out of DB plans and move into DC plans. Now it is the opposite. Who knows where it will be in 20 years from now.


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## Westerly (Dec 26, 2010)

This 2007 headline gives us an idea of how the public pensions were performing through the early 00's. 

"Unions, feds face off over pension surplus OTTAWA (CNS) -- The federal government and its unions square off in an Ottawa courtroom today as they begin a historic trial over who owns the $30-billion surplus that was scooped from federal workers' pension plans to help pay down Canada's deficit." and later: "The Supreme Court of Canada has ruled federal employees aren’t entitled to any of the $28-billion surplus the government took from their pension funds a decade ago to help pay down the deficit because the accounts were nothing more than “ledger” records with no real assets."

They've done the same with EI and now tell us that the CPP is under-funded and that our contributions must increase. A decade later these funds are referred to as "unfunded liabilities" in the context that the employees/taxpayers are not paying their share.

Sounds like pretty high cost management to me. And now they want to start up a new government run DB pension, or enhanced CPP, because "the people aren't putting enough away?"


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## Canadian (Sep 19, 2013)

Enhanced CPP and _mandatory_ RRSP contributions to make sure people are saving enough sounds ridiculous. We don't need the nanny state taking over. If we need to rely on the government to make sure we act responsibly we may as well ask to have our meals prepared as well so that everyone is eating healthy.


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## m3s (Apr 3, 2010)

RBull said:


> If I had the opportunity for a public DB pension *knowing what I do now*, I would have grabbed it in a heartbeat, even when markets are doing well.


Yes hindsight is 20/20 isn't it. When the markets were booming, the government du jour adjusted legislature and then immediately "accounted for" $28B to pay down government deficit from military and RCMP pensions.. Now when the tables have turned, the government is again quietly cutting back the carrot that people have already worked towards for 20-30+ years. I agree the cuts need to be made sooner rather than later as our free economy is heading down the tubes, however I don't think many private sector employees would willingly subject their life savings to this kind of government control. If so, just vote to replace your RRSP with CPP contributions (pensioners have significantly less RRSP room)


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## RBull (Jan 20, 2013)

m3s said:


> Yes hindsight is 20/20 isn't it. When the markets were booming, the government du jour adjusted legislature and then immediately "accounted for" $28B to pay down government deficit from military and RCMP pensions.. Now when the tables have turned, the government is again quietly cutting back the carrot that people have already worked towards for 20-30+ years. I agree the cuts need to be made sooner rather than later as our free economy is heading down the tubes, however I don't think many private sector employees would willingly subject their life savings to this kind of government control. If so, just vote to replace your RRSP with CPP contributions (pensioners have significantly less RRSP room)


Agree on the hindsight. To my knowledge the military and RCMP pensions are in no way compromised through this action (however inappropriate)

The changes government is making on public pensions is overdue and well justified. 

What you do not mention: Most of the money from government employee pensions is not from their own contributions. Most of their pension funds came from their employers (read public). That is quite different from private individuals whose RRSP's are funded entirely by themselves, which would likely explain your theory about why private sector employees might resist government control. 

If it were only so simple as to mark a ballot and have that option to replace all of my RRSP with CPP contributions.....not realistic as employers are involved. I was an entrepreneur for years too and can understand the implications on employers. My wife is a pensioner so also have that experience. Personally I would be fine with having a sizable share of my retirement money being handled effectively by the government. CPP is living proof it can work.


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## Westerly (Dec 26, 2010)

Regardless of where the money comes from, the pension liability arises out of contract between the employer and the employee(s.) The employees agreed to work in exchange for XX benefits including the pension. Forward changes affect future contracts which AFAIK is fine, at least I have a choice.

Also, RRSPs do partly come from the public purse in the form of tax refunds. I have a distant theory that the TFSA program is in fact Government borrowing those tax refunds from the future. Perhaps the biggest beneficiary is the current government.


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## Canadian (Sep 19, 2013)

Westerly said:


> Also, RRSPs do partly come from the public purse in the form of tax refunds.


Tax refunds resulting from deducting RRSP contributions have nothing to do with the "public purse." These refunds occur because the deductions reduce the taxpayer's taxable income - thus taxes payable < taxes withheld.


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## Westerly (Dec 26, 2010)

Do you agree that if no one contributed to RRSPs this year there would be more taxes going toward the deficit? (not to mention lower cost of child tax benefits and GST credits etc)


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## RBull (Jan 20, 2013)

Westerly said:


> Regardless of where the money comes from, the pension liability arises out of contract between the employer and the employee(s.) The employees agreed to work in exchange for XX benefits including the pension. Forward changes affect future contracts which AFAIK is fine, at least I have a choice.
> 
> Also, RRSPs do partly come from the public purse in the form of tax refunds. I have a distant theory that the TFSA program is in fact Government borrowing those tax refunds from the future. Perhaps the biggest beneficiary is the current government.


This may be true but to be clear this is a benefit of all registered pensions. They reduce taxable income and in the case of government pensions they have the additional benefit of heavy public funding. Therefore my point about control is really the same. So they're really funded by those taxpayers without a pension plan, which may be arguably grounds to say what we have now isn't working great for those people. 

I'm not following your theory on the TFSA's. Can you explain?


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## Westerly (Dec 26, 2010)

RBull,
Yes, the RRSPs are not broken as far as their original intention (although they are not utilized.) By implementing TFSA the government has, in part, taken funds that savers would have otherwise put into RRSPs. From the government's perspective, no tax refund today at the expense of taxes in the future when the saver takes it into income. It's a distant thought.


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## Canadian (Sep 19, 2013)

Westerly said:


> Do you agree that if no one contributed to RRSPs this year there would be more taxes going toward the deficit? (not to mention lower cost of child tax benefits and GST credits etc)


Not really. More tax revenue doesn't solve the issues with how it's managed. The thought of the additional tax revenue going towards the deficit is a bit utopian to me.


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## Westerly (Dec 26, 2010)

allocate it as you see fit, we at least appear to agree that it's a differential in tax revenues.


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## RBull (Jan 20, 2013)

Westerly said:


> RBull,
> Yes, the RRSPs are not broken as far as their original intention (although they are not utilized.) By implementing TFSA the government has, in part, taken funds that savers would have otherwise put into RRSPs. From the government's perspective, no tax refund today at the expense of taxes in the future when the saver takes it into income. It's a distant thought.


OK, I think I get you. No tax deduction hit now but no future tax revenues from what would have otherwise been RPS withdrawals.


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## RBull (Jan 20, 2013)

For Canadian there really isn't a deficit now, if you don't consider the 3B going into emergency funding. Or do you mean the debt?


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## Canadian (Sep 19, 2013)

Westerly said:


> allocate it as you see fit, we at least appear to agree that it's a differential in tax revenues.


Well, I should specify that it would increase present tax revenues (i.e., with the absence of RRSPs is the absence of tax deferrals). One could argue that RRSPs can increase total tax revenues over a long time period. If one contributed diligently to their RRSP over their earning years, it should be a considerable size by the time it is drawn down. At this time, the growth from capital gains and dividends are fully taxed as income. Though, one would arguably have a lower marginal rate at this time (compared to during the earning years), it could be argued that the total tax paid over the years the RRSP/RRIF is drawn down is greater than the total tax deferred from contributions.


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## Canadian (Sep 19, 2013)

RBull said:


> For Canadian there really isn't a deficit now, if you don't consider the 3B going into emergency funding. Or do you mean the debt?


There is until next year! :stupid:

But yes, what I said is probably better put towards national debt. Once (if) we move to a surplus budget I can bet there will be a lot more interests in spending the surplus on party-related interests than there will be in reducing the debt.


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## Westerly (Dec 26, 2010)

Yes CDN, I suppose one could argue a number of angles, but the premise of RRSPs is to defer and save taxes. I expect that you and I will do both.

RBull, yes that's basically it. My very-slight lean toward conspiracy suspicion also has me pondering the timing of TFSAs amid and within the following market turmoil and continued historic low interest rates - all of which seems to take from current retirees. I won't elaborate as it's conjecture at best.


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## Eclectic12 (Oct 20, 2010)

Charlie said:


> ... With no restrictions on withdrawals, not even a loss of contribution room, these really just exempt a growing amount of investment assets from tax ...


 ... assuming the investments don't drop, it's a $ out and a year later the $ can be replaced.

However those who have posted their sad tale of bad investment choices then are surprised to learn they can't replace them or claim a capital loss might have a different view of "not even a loss of contribution room".


Cheers


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## Eclectic12 (Oct 20, 2010)

GoldStone said:


> TFSAs are a gift to the public servants ...


 ... and a business owner making millions isn't doing the same, based on their high priced advisors?

I wonder how many of those milking the 1% over-contribution penalty through asset swaps or penny stocks were mining company people ...


Cheers


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## Eclectic12 (Oct 20, 2010)

fraser said:


> ... The stats on RSP and TFSA useage are not that great.
> It seems to me that the numbers are in the 15-20 percent range ...


I can agree the numbers aren't great but according to this link, 48% of Canadians say they have a TFSA, up from 23% in 2012. However, 89% don't know what can go in a TFSA so no surprise - cash seems to be the big leader for investments. The average contribution was going to be $3.6K.
http://www.theglobeandmail.com/glob...t-many-hazy-on-details-study/article16053061/


Then too, the following from this 2012 article is IMO telling:


> ... only half of the respondents with a TFSA account have made a contribution this year ... The poll, ... found that 41 per cent of Canadians with a TFSA say ... they just wanted to *avoid paying tax on the interest.*


http://www.huffingtonpost.ca/2012/08/27/tfsa-tax-free-savings_n_1833123.html


Cheers


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## Eclectic12 (Oct 20, 2010)

Canadian said:


> Tax refunds resulting from deducting RRSP contributions have nothing to do with the "public purse."
> These refunds occur because the deductions reduce the taxpayer's taxable income - thus taxes payable < taxes withheld.


Add to that, when the funds are withdrawn from the RRSP - regardless of how the growth occurred, will be reported as income and taxed when withdrawn. (For example, $1 paid in dividend then withdrawn from the RRSP is taxed as $1 income.)


Cheers


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## Eclectic12 (Oct 20, 2010)

RBull said:


> Westerly said:
> 
> 
> > ... Also, RRSPs do partly come from the public purse in the form of tax refunds ...
> ...


Wow ... there's a lot of misleading information.

First off - a pension does not generate a refund. The employer knows the contributions reduce income so that they don't withhold income tax. This means it all evens out so that less tax goes the gov't but there also no refund to pay.

The employee is more likely to be getting a refund from too much tax being with held on overtime hours or other actions such as political party contributions, RRSP contributions, tax credits from charitable donations etc.


Secondly - the "reduce taxable income" applied to far more than just pensions (ex. RRSP or TFSA contributions are two of many examples that will also reduce taxable income).


Finally - don't forget that when the RRSP money is withdrawn, it's 100% taxable. So all those dividends or capital gains in the RRSP are fully taxable where they would not have been in taxable account. So there are benefits to the gov't as well, without considering things such as not clawbacks or the like.


Cheers


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## RBull (Jan 20, 2013)

Eclectic12 said:


> Wow ... there's a lot of misleading information.
> 
> First off - a pension does not generate a refund. The employer knows the contributions reduce income so that they don't withhold income tax. This means it all evens out so that less tax goes the gov't but there also no refund to pay.
> 
> ...


Thanks for the clarification and the information. 

Perhaps my post was not clear. I did not state nor mean to imply they generate a refund, as you are suggesting. 

For the other information I'm sure it will be helpful to someone starting out with investing and taxes.


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## Westerly (Dec 26, 2010)

Talk about a dead cat bounce It seems every page this thread loses 10% of the context of the posts, and 15% of the original topic, which I'm partly responsible for. 

All else being equal, there is no significant tax difference between personal pension contributions and RRSPs. One has tax reduced at source and the other has the potential to result in tax refunds (you can also apply to have tax reduced at source for RRSPs.) At the end of the year both have similar potential to reduce taxes payable. People talk about "taxes paid", "taxes payable" and "tax refunds" like they're separate pools, they're not - and I know you all know this. They all come from the same net taxes paid by the end of the year. Both pensions and RRSPs result in taxes payable later on.


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## nortel'd (Mar 20, 2012)

Getting back to the question asked ... Which demographic would you say is the greatest benefiter of TFSA?
I posted earlier but forgot to give my opinion accompanied by a long-winded comment.

When the cash is “available” for the yearly TFSA contribution and is invested and managed with care and due diligence ... It is great for all demographics. 

BUT it is greatest for those who in 2009 were 18 years of age, were residents of Canada and have had a source of available cash at their disposal for their yearly TFSA contribution. 

1. There is no attribution rule attached to the TFSA, allowing a parent or grandparent to transfer without consequence the yearly contribution to each adult child in the family - for the rest of their lives. 

2. The future value for making the yearly $5500 contribution compounding at rate of return of 3% inside a tax-sheltered plan over a productive lifetime of 49 years (age 18 to 67) is 596K. 

3a. They don't lose TFSA room once it is created. Withdrawals (distributions) from the plan will create new TFSA contribution room. 

3b. Take the money out - principal and earnings - for what-ever purpose “they” wish. Then “you” can put it back to grow again.

4. Unused contribution room can be carried forward on an indefinite basis.

5. Income-tested tax preferences like Child Tax Benefits, Employment Insurance Benefits or Old Age Security pension are not affected by earnings in the plan.

WOW .... Life is good. A parent sponsored RESP for their child’s education (tax-sheltered but taxed at the child’s tax rate when they use it) and a parent sponsored TFSA (tax-sheltered and free) for their child’s retirement. 

HOWEVER ... I dread the day, during a very close election campaign, a political party leader gets behind a podium and starts to speak.
“TFSAs are popular with all Canadians because their distributions provide regular payments that are used by many to cover the costs of groceries, heating bills and medicine.”

“ They also provide tax relief from a government that is addicted to taking too much money from their pockets, and spending it without care.”

“The success of TFSA’s represent a rare triumph for investors over the tax man. Let's not be so naïve to assume that (BLANK) will do the right thing to protect taxpayers. We'll need to fight hard to keep what we have."


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## Squash500 (May 16, 2009)

IMHO if you have a very low employment income then the TFSA is the way to go. Having a TFSA means that later on in life your government benefits (GIS, OAS) when you turn 65 won't be clawed back. Whereas if you have a high RRSP balance then they might be?


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## OurBigFatWallet (Jan 20, 2014)

I think anyone under 25 has a chance to accumulate some serious long term cash flow, all tax free, through a TFSA. As along as the annual limit is maintained or increased the younger generation has a good shot at a tax free income fund on retirement as long as the money is allowed to compound. I wouldn't rely solely on a TFSA for retirement but it would definitely help


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## marina628 (Dec 14, 2010)

Well I am 47 years old and my husband and I have over $90,000 in our TFSA so even in our 40s and 50s we can accumulate a great deal of money.


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## jacofan (Apr 17, 2013)

Greatest benefit to those that use it wisest. Someone in their 50's could have some good investments that make some good coin and young'uns that don't invest it wisely could squander all their investment room away.

If buy and hold was the strategy with blue chips, time is king so the younger gen has the biggest benefit but all demographics can lose it equally.


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## Jon_Snow (May 20, 2009)

The TFSA is truly a gift from above. My wife and I will be maxing this every year until we are old and wrinkly...:tongue-new:


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## andrewf (Mar 1, 2010)

Let's not get carried away. Canada needs a certain amount of tax revenue to meet is obligations. TFSA shielding of some assets from taxation just means the burden falls more heavily on other assets and sources of income. Calling it a gift from god is succumbing to manipulation by politicians.


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## OnlyMyOpinion (Sep 1, 2013)

Lots of good comments here. 
There is no arguing that a TSFA can help reach financial independence. If you can put $5000/yr (not even $5500) of your after-tax income in diligently from age 25-60, and earn 5%, you'll have over $500k saved. 
The challenge is whether everyone can afford or will commit to the $5000/yr, and to investing it to earn 5%. It appears that a majority of Canadians do neither. Those of any demographic who are using a TSFA as part of their overall planning will benefit compared to the rest.
Is this where something like additional voluntary (but heavily encouraged) CPP contributions by payroll deduction could make more sense for that majority that seem unable or unwilling to take charge of their own saving and retirement planning?


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## marina628 (Dec 14, 2010)

I hope have the TFSA gets people to save more for retirement because many people underestimate the true cost of retirement.Our church helps a lady in Toronto who is 84 and after she pays her rent she has $160 a month to live on ,without us taking her food and money she would never survive.


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## fraser (May 15, 2010)

It would be the demographic that decides not to buy that new car or that surround sound system, or whatever and instead puts the money in a TFSA year after year AND leaves it there!

I suspect that it is the same demographic that seldom has to pay any credit card interest or make minimum payments.


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## Nemo2 (Mar 1, 2012)

^ +1


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## Jon_Snow (May 20, 2009)

Of the number of Canadians who have TFSA's (less than 50%), 57% hold cash in them, while only 14% holds stocks or ETF's... the government isn't missing out on a ton of missed taxable gains that I can see. The TFSA is going to be severely under utilized given the cash strapped nature of the average Canadian - every study I've seen supports this. 

Bang on with your comment Fraser. People really have no one to blame but themselves if they can't make use of the TFSA....


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## Eclectic12 (Oct 20, 2010)

nortel'd said:


> Getting back to the question asked ...
> 1. There is no attribution rule attached to the TFSA, allowing a parent or grandparent to transfer without consequence the yearly contribution to each adult child in the family - for the rest of their lives ...


Hmmm ... having received gifts from aunts of $10K or more with no attribution, this doesn't seem new to me.




nortel'd said:


> ... 3a. They don't lose TFSA room once it is created. Withdrawals (distributions) from the plan will create new TFSA contribution room ...


 ... depends on the investment - one that tanks will definitely "lose" TFSA room.




nortel'd said:


> ... 3b. Take the money out - principal and earnings - for what-ever purpose “they” wish. Then “you” can put it back to grow again ...


Having watch what some relatives spend money on - I wouldn't be comfortable with.

Wouldn't it be better to leave investments in the TFSA and gift the money instead?


Cheers


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## Eclectic12 (Oct 20, 2010)

Jon_Snow said:


> Of the number of Canadians who have TFSA's (less than 50%), 57% hold cash in them, while only 14% holds stocks or ETF's... the government isn't missing out on a ton of missed taxable gains that I can see ...


Hmmm ... I agree with the point in general but the stats look off. 

Any idea why the source for your stats is so low compared to the BMO study which says 25% MFs, 14% stocks & 5% ETFs?

http://ca.finance.yahoo.com/blogs/p...-don-t-understand-tfsas-report-163644642.html




Jon_Snow said:


> ... People really have no one to blame but themselves if they can't make use of the TFSA ...


 ... not quite sure how much someone making $8K a year should be putting away in a TFSA.


Cheers


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## Jon_Snow (May 20, 2009)

I'm speaking of folks who have good incomes who can't make use of the TFSA because they are living beyond their financial means. 

Cheers.


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## Synergy (Mar 18, 2013)

I'd have to agree with Jon_Snow. Would it really be that hard "financially" for most people to sock away $50-100/month into a TFSA? It's not "maxed", but it's a start. People spend way more on cigarets, alcohol, coffee, fast food, massive cell phone bills, etc. in a month. Financially I think it's doable for most, but emotionally / psychologically it's not an easy task for many. Luckily for the economy, people like to spend.


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## nortel'd (Mar 20, 2012)

Eclectic12 said:


> Hmmm ... having received gifts from aunts of $10K or more with no attribution, this doesn't seem new to me.


Only this time, because there is no attribution, you can legally gift/transfer back "any dividends earned" to your aunt. 



Eclectic12 said:


> ... depends on the investment - one that tanks will definitely "lose" TFSA room.


When the cash is “available” for the yearly TFSA contribution and is invested and managed with care and due diligence hopefully tanking can be kept to a minimum and only the dividends removed. 



Eclectic12 said:


> Having watch what some relatives spend money on - I wouldn't be comfortable with.
> 
> Wouldn't it be better to leave investments in the TFSA and gift the money instead?


 Very true. 

But my daughter is different...........


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## Eclectic12 (Oct 20, 2010)

nortel'd said:


> Only this time, because there is no attribution, you can legally gift/transfer back "any dividends earned" to your aunt ...


I'll have to check up on the attribution rules as the most common examples I can recall involve either trusts or minors.




nortel'd said:


> ... When the cash is “available” for the yearly TFSA contribution and is invested and managed with care and due diligence hopefully tanking can be kept to a minimum and only the dividends removed ...


For the few who can manage themselves or willing to follow along, this will work great. 

Recalling my roommate in university who on one hand acknowledge saving for a bit for retirement early was a good idea but when he had excess cash, he decided a stereo was better as "I have lots of time" - I can't help wondering how many this would work for.


Cheers


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## marina628 (Dec 14, 2010)

My daughter is 22 and in November we went to bank with her and we contributed $5000 for her.She is done her first degree next year and in a internship program this summer so it seems she should have a good job waiting for her when she graduates next year.I have taken time to show her savings calculators etc to show her how saving a bit over a long time adds up.I think if parents have poor financial habits it shows on the kids generally .


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## Eclectic12 (Oct 20, 2010)

marina628 said:


> ... I think if parents have poor financial habits it shows on the kids generally .


I noticed the same thing in high school. Where the parents valued learning, the kids did as well and put forth a more honest effort. Where the parents didn't - with a few exceptions, the kids didn't either.

So no real surprise that the same holds true for finance.


Cheers

*PS* 
Then too - having parents who were involved in their kids lives made a big difference as well.


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## nortel'd (Mar 20, 2012)

Eclectic12 said:


> I'll have to check up on the attribution rules as the most common examples I can recall involve either trusts or minors.


My deepest :apologetic:apologies Eclectic12

I made an "assumption" that my aunt and I, because we are related, do not deal with each other at arm’s length but ... CRA treats monetary dealings between the two of us as arms length. In other words an attribution rule would be attached to the TFSA, not allowing an aunt or uncle to transfer without consequence the yearly contribution to each adult niece or nephew in the family.

So that being the case … Here is how my Aunt Margaret and I can help each other…

Aunt Margaret “gifts me” on a yearly basis $5500 and I put the money in my bank account and then transfer it to my TFSA and purchase X number of BCE shares. 

The dividends BCE makes during the year are “created room” and at the end of the year I transfer the value of the BCE dividends into my bank account, remove them as cash and, because neither of us has to pay any income-tax on them, every Christmas, we spend the afternoon stuffing Aunt Margaret’s Muddy Waters ceramic change jars. 

http://www.debsuniquegifts.com/cewoja.html 

Since the dividends have created new TFSA contribution room, I’ll be able to return them using my own money at a later date. 

http://www.cra-arc.gc.ca/E/pub/tp/it419r2/it419r2-e.pdf
Other relatives
¶ 9. For purposes of the Act, an individual’s niece, nephew, aunt, or uncle is not related by blood, marriage, common-law partnership or adoption to the individual unless such person is also the individual’s child or parent because of the extended meaning of child as described in ¶ 4. Cousins are not related by blood unless one is the child of the other because of the extended meaning of child (as described in ¶ 4), or is the spouse or common-law partner of the other one’s brother or sister. However, under certain circumstances, cousins may be related by marriage, common-law partnership, or adoption.

:apologetic:


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## Brian Weatherdon CFP (Jan 18, 2011)

So it becomes clear that any age from 18 to 100 can benefit from TFSA. 

If taxable income is low, TFSA benefits exceed RRSP because you can deposit to RRSPs at another time when tax refunding will be higher.

If you already maximize RRSPs, TFSA offer a logical place to continue building tax-sheltered growth (potentially alongside tax-sheltering permanent life insurance contracts).

If you want to manage the tax-effectiveness of withdrawals from your RRIF/pension income, holding surplus in a TFSA can be very effective.

At greater ages too, if you haven't arranged life insurance to cover costs arising at death, TFSAs can offer "some" advantages of self-insuring.

So overall, in the context of certified financial planning TFSAs can for most people offer a vigorous and versatile tool for personal financial goals and objectives.


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