# Charitable Donations / RRSP - instead of taxes?



## TempoTrader (Apr 30, 2009)

Hi everyone,

As a newcomer to this forum, I'd first like to say thanks for all of your informative posts and blogs, a number of which I've been following for some time now. The collaboration is helpful, constructive, and appreciated.

I have a question concerning the tax breaks given for charitable donations and RRSP contributions. Consider the following -- how much would I have to give to a) a charity, or b) to RRSP, or c) to both, to minimize/eliminate capital gains taxes in the following stock investment situation:

Initial investment: $3000.00 
Sale: $12,000.00

Location: Ontario

I realize that you are taxed on 50% of your capital gains (i.e., capital gains being the net "profit" once your initial investment and brokerage costs are subtracted). For ease of calculation, and to allow a financial buffer, I assume the highest possible taxation rate (i.e., approx. 47% in Ontario...and I round it to 50%) which basically means that 1/4 of your profit will actually be tax that you have to pay (50% tax on 50% of the net profit).

Given the case above, I would have to pay approx. $2250.00 (50% of 50% of a profit of $9,000.00) in tax as a result of that sale transaction. Now, how can I allocate the profits, and in what proportion, to a charity and/or RRSP to minimize/eliminate the tax liability of $2250.00?

Thank you in advance for your help!


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## lb71 (Apr 3, 2009)

To pretty well eliminate any taxes, you would have to contribute the half the amount as your gain. You gain is $9k, so contribute exactly half that much to your RRSP. You taxable income then becomes $X + $4500 - $4500 = $X, where $X is your other taxable income before capital gains and after RRSP deduction. Note that the capital gains still affects other government benefits such as OAS, since it is based on $X + $4500.


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## FrugalTrader (Oct 13, 2008)

Tempo, your capital gains tax calculations are correct.

If you wanted to offset the tax with a RRSP contribution, assuming a 50% tax bracket, you would need to contribute $4500 ($4500x50%=$2250 tax refund).

With regards to the charity, anything above a $200 donation will give you a tax credit at the highest marginal rate for your province (assume 50%). Therefore, you would need to donate approxmiately $4625 to get a tax credit of $2252.50


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## TempoTrader (Apr 30, 2009)

lb71 and Frugal,

Thank you for your replies - that's exactly the clarification I was looking for.

Cheers!


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## msj (May 3, 2009)

You do realize that if you donate the security to a registered charity (rather than sell it and donate cash) then the tax gain is exempt from tax to begin with? (At least from federal tax).

A bit dated but still useful: Donating Securities isn't easy... [PDF]


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## cardhu (May 26, 2009)

lb71 said:


> Note that the capital gains still affects other government benefits such as OAS, since it is based on $X + $4500.


No ... most gov’t benefits would be based on ... X = X + $4500 - $4500
OAS would be unaffected.


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## leslie (May 25, 2009)

Although I agree with all the math above, it is measuring cash flows only. If your purpose is only to zero out the cash cost of the tax on the gain then they are correct.

But the charitable donation is a permanent tax benefit whereas the RRSP tax credit is only temporary until the plan is collapsed... at which point all the original tax credit PLUS all the income it earned is taken back by the government.

Watch the 2nd video at least of this series. https://www.youtube.com/channel/UCYf70uCj5q4GRWYC0wVtdxg


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## cardhu (May 26, 2009)

leslie said:


> all the original tax credit PLUS all the income it earned is taken back by the government.


Rubbish .... leslie, you are misunderstanding some things ... firstly, there is no tax credit for RRSP contributions, there is a deduction ... not the same thing ... secondly, many people will not only end up keeping all the income earned on their original tax break, after tax, but will also keep part of the original tax break ... in other words, the tax break may very well grow tax-free. 

Don’t believe everything you read on the internet ... that retailinvestor page that you found, is wrong.


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## leslie (May 25, 2009)

TempoTrader has to realize that cardhu has a hate-on for every thing I say. Essentially, the RRSP is no different from the TFSA. I presume you did not consider the TFSA in your original list of options, but did include the RRSP because you believe the the tax credit/deduction (difference irrelevant) is a 'value' to you. But the tax credit is a red-herring.

The only difference between RRSPs and TFSA (over its lifespan) in that the RRSP exposes you to an increase/decrease in benefits if your tax rate for withdrawals is lower/higher than the rate for contributions. This issue is shown on the spreadsheet but is of no relevance to the discussion here.


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## stephenheath (Apr 3, 2009)

Leslie... you have said in this thread:



> The only difference between RRSPs and TFSA (over its lifespan) in that the RRSP exposes you to an increase/decrease in benefits if your tax rate for withdrawals is lower/higher than the rate for contributions.


Which is absolutely correct (aside from a tiny difference when the RRSP credit is added to the RRSP in the year of the tax return instead of the initial contribution year, which gives the TFSA a slightly higher return), but you have also said in a couple threads now:



> RRSP tax credit is only temporary until the plan is collapsed... at which point all the original tax credit PLUS all the income it earned is taken back by the government.


Which is not only incorrect, it contradicts the first statement from you I quoted, because if that were true, the TFSA AND RRSP WOULD NOT PROVIDE EQUAL RETURNS given equal tax rates, and it is this assertion that you have made in other threads that is frustrating cardhu. It is also obviously false, because to acheive that, you are talking about a 100% tax rate on withdrawal, and the maximum rate is around 50% for top earners.


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## cardhu (May 26, 2009)

Leslie, you have an active imagination.

From time to time, I point out errors, invalid claims, or the use of weak logic in many people’s posts, not just yours ... if you feel like you’re getting more than your fair share of those comments, rest assured that I let many of your errors go by without comment ... who has time for that? ... on the other hand, if you feel uncomfortable having your errors pointed out, the simple solution is don’t keep repeating them, and don’t post so many of them. 

Incidentally, you’ve done it again ... the tax break on contribution to RRSP is not a red herring at all ... it is the single strongest reason that the RRSP succeeds in outperforming most other approaches ... to suggest that it has no value is simply wrong ... for the majority of the tax-paying population, it has significant value ... this is a well-established financial truth that has been amply proven and that you can’t disprove ... ironically, the very spreadsheet that you point to as a reference, flawed though it is, proves that your assertion is wrong. 

Stephen, thanks for your efforts, but I’m afraid its quite futile ... I actually find it more fascinating than frustrating to see the same absurd views reappear over and over and over again, in unrelenting repetition, despite their having been disproven so many times over ... unfortunately, though, the sort of thing that a newbie might not immediately recognize as bunk.


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## leslie (May 25, 2009)

Stephen's argument ignores that the spreadsheet allows you to prove it to yourself using any tax rates you want. His making the argument proves that he never looked at the spreadsheet. Of course his opinion will never change if he refuses to even consider the argument.

Both posts above have lost track of what the issue being argued here is. The original poster seemed to be under the impression that the RSP contributions's tax credit would offset her capital gains. I made the point that although it would indeed net the immediate cash flow, the benefit of the tax credit is only temporary. All the credit plus all the income earned by the credit is taken back on withdrawal. There is no 'benefit' from the credit.


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## stephenheath (Apr 3, 2009)

Leslie, YOUR argument ignores the fact that (a) you are contradicting yourself, (b) you are mindlessly believing something you found on the internet as gospel and (c) when many people have pointed out that you are wrong and providing false information to people, your response is always "prove I'm wrong" instead of doing the intellectually honest thing and working it out yourself. It is ESPECIALLY irritating because if you looked one cell to the left of your "proof" you would also notice that the spreadsheet claims EVERY SINGLE RRSP CONTRIBUTION pays ZERO PERCENT TAX on withdrawal in EVERY CASE. It is so obvious it either means you are either so out of your depth with financials you should not be providing advice to ANYONE OR you couldn't be bothered spending two brain cells to double check your own assertion when the error was pointed out to you. Based on some of your other posts, I assume the latter, but either way, SHAME ON YOU!

Here's your problem with the spreadsheet. Row 38 of sheet 3 is the tax calculations upon withdrawal. Column I is the tax calculation for the entire RRSP, the initial contribution + the refund and is correct with the formula -I37*H16 (I37 = Total Withdrawal, H16 = Tax Rate). Column H is supposed to be the tax on the withdrawal of the credit and should therefore be the formula -H37*H16 (H37 = Credit Withdrawal, H16 = Tax Rate), but whoever did it screwed up and just set it as -H37, which is ONLY the Credit Withdrawal without applying the tax rate. Column G is supposed to be the tax on the withdrawal initial contribution, and could either be calculated as -G37*H16 (G37 = Contribution Withdrawal, H16 = Tax Rate) OR as the spreadsheet author chose to do, I38 - H38... in other words, the total that is already calculated minus the other number already calculated, so take whatever is left. This method avoids rounding errors, but because he screwed up the second total, it screws up this one as well. 

All you have to do is fix the formula in cell H38 to the proper -H37*H16 and surprise, the numbers work out correctly and show that both the funds arising from the contribution AND the refund (and all the resultant income) are all withdrawn at the withdrawal tax rate.


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## stephenheath (Apr 3, 2009)

Leslie, you're doing it AGAIN.



> Both posts above have lost track of what the issue being argued here is. The original poster seemed to be under the impression that the RSP contributions's tax credit would offset her capital gains. I made the point that although it would indeed net the immediate cash flow, the benefit of the tax credit is only temporary. All the credit plus all the income earned by the credit is taken back on withdrawal. There is no 'benefit' from the credit.


Aside from the fact that you're arguing the same WRONG WRONG WRONG information yet again (although I grant that you posted this edit while I was providing you the proof that you are wrong), what this basically does is give the original poster a loan from the government, giving the poster $2,250 in the RRSP that otherwise would not be available. Since that money grows tax free, the longer it is in, the greater compounding will be. This results in logarithmic gains when compared to paying the taxes, with the end result that when the original poster does finally pay the taxes on that $2,250, he will also be splitting with the government a portion of the gains, and the better he is at earning gains, the greater the logarithmic gains. In short, depending on how good the original poster is at generating returns, there could be HUGE benefits from the credit.

Again, I am assuming you would see this if your entire "RRSP" mindset had not been based on a completely erroneous spreadsheet.


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## leslie (May 25, 2009)

The spreadsheet is correct.

You agree that the total tax calculation on draws is correct. The point of the spreadsheet was to show the allocation of that total tax, to clarify WHAT exactly was being taxed, to allow people to understand the system.

You say the withdrawal tax is meant to reduce equally BOTH the original tax credit as well as the 'true' after-tax savings that went into that contribution. (In other words both the first two columns should be taxed). But that is not the intent of the RRSP system. 

The system is meant to PROTECT FROM TAX all the 'true' after-tax savings that go into each contribution ... as well as all the income earned on those savings...... just like the TFSA does.

The spread sheet shows that it does just that. There is NO tax on your savings (as long as the tax rates on contributions and draws is the same). 

If you like, the calculations in the cells could have been set up so that the allocation of the total tax between the first two columns could have started with $0 against the true savings, and the remaining against the second column. The results would be the same (as long as there were no difference in rates between draws and contribution).

By allocating the total tax first against the tax credit, you see clearer 
* how savings and their income is not taxed
* how all the original credit and its income is taxed away
* how the first column essentially equals what happens with an TFSA
* how changing tax rates affects the tax-sheltering of your true savings
* how to decide whether it is better to invest inside an RRSP or outside. 

In sum, the model allows you to understand what is going on. Only when you understand that the original tax credit (and all its income) is temporary, can you properly make decisions like "how best to offset a capital gains tax bill".


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## stephenheath (Apr 3, 2009)

Leslie, it is obvious you don't understand the spreadsheet you are using. First of all,



> The spreadsheet is correct.


And the sky is green. I've shown you exactly where the calculations and cells are wrong (well, where they are wrong in the important part, the way it calculates the contribution is also wrong, the creator made it 44% of the total contribution, but it is not, the refund is 44% of the original contribution).

Your argument about how to allocate it is stupid. It is exactly the same as if I told you I have two jobs, one that pays $70,000, and one that pays $30,000. I pay $50,000 in taxes, therefore the second job I am paying 100% taxes on and the first I am paying 28% taxes on. Therefore, using your logic, just like I shouldn't use the RRSP, I shouldn't bother working my second job. The reality is that taxes are applied uniformly on my income, NOT on which job it was, and likewise, the tax on withdrawals from your RRSP is applied UNIFORMLY on your withdrawals, regardless of whether the money originally came from the original contribution or the contribution resulting from the refund.

You are also failing to understand the spreadsheet, the point of it is not to


> show the allocation of that total tax, to clarify WHAT exactly was being taxed, to allow people to understand the system.


, the point of that section of the spreadsheet is to allow you to understand how much money you will wind up with after you have let it grow then withdrawn it. What this spreadsheet is telling you is that IF your tax rate is 44%, you make 8% return on your investments, you put $1000 (the sum of your contribution and the refund) into your RRSP, then at the end, when you withdraw it, you will have $12,166. If you correct the broken cell, it will also point out that you have an after tax rate of return of 6.4% on your original contribution, and an effective tax rate of 19.4%. If we did NOT put this money into the RRSP, we would have started with 540, and had it grown by (8% * (1-44%)) over 40 years... or 540*(1.0448^40) = 3116.88. So by putting the money into an RRSP, we have gained 12,166-3,116.88, or about $9,050. THIS is what the spreadsheet is showing you.

THAT is the key error of what you are doing wrong. While arguing that because of this error, the refund gives you $0 so you shouldn't do it, you are forgetting that this SAME error shows you that the RRSP grows 100% tax free and there is no tax on withdrawal. So since you don't seem to understand that point and have some massive mental block, just make everyone happy and just talk about the totals. 

Here's a last, simple bit of proof that even you should be able to understand. On a T4RSP form (you know, the form you get when you withdraw money from your RRSP)... show me where it is indicated whether the funds come from your original contribution or your refund so the government knows whether to charge you 100% tax or 0% tax. 

But don't worry, I won't hold my breath....

PS: You also say quite often that TFSA = RRSP. But the reality is that TFSA ONLY equals the RRSP when both the original contribution AND the refund are contributed to the RRSP, otherwise they do not equal. Do the math yourself, it's pretty simple... in fact, here's the formulas assuming 10% return, 50% tax rate, 30 years until ending and a $20,000 contribution.

TFSA = 20,000 * (1.10 ^ 30)
RRSP with refund thrown in = (20,000+10,000) * (1.10 ^ 30) * 50%
RRSP without refund = 20,000 * (1.10 ^ 30) * 50%

I'll let you do the math, maybe you'll learn something. Now... how can the TFSA only equal the RRSP if the refund is included if the refund is worth $0? If it can't, there's even more proof that your hypothesis is WRONG.


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## cardhu (May 26, 2009)

Rinse and repeat. 

leslie ... you did not read my post, and the fact that you continue to make these absurd assertions proves* that you didn’t ... repetition will not make your false assertions any less false.

(* applying the same Dr. Seuss distortion of the concept of “proof” employed by leslie in her posts)

As I may have mentioned previously, what you mistakenly perceive as “facts” are very often not, and what you perceive as “proofs” are often just self-serving constructs of the “A=A and therefore B” variety. This is what retailinvestor has done here, and you’ve swallowed his defective argument hook, line and sinker.


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## leslie (May 25, 2009)

My, such anger! I'll let the original poster come to his own conclusion. And yes I will repeat the point in the future where relevant.


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## stephenheath (Apr 3, 2009)

Leslie... I use this as an example not knowing if you are married or not. Let's say someone, as a joke, put on their myspace page, perhaps as a caption to a funny picture, that "Leslie is cheating on her husband". Now say I come across it and don't understand the context, so I start telling everyone who knows you that you are cheating on your husband (oh, and off the bat, if you happen to be one of those guys named Leslie, my apologies, feel free to substitute wife with husband). You come to me and say "wait a minute, don't tell people I'm cheating on my husband, it's not true", and I reply "yes it's true, I saw it on that myspace page". You swear it's not, prepare affadavits, and even provide alibis that you were WITH your husband at the time, and again, I say "I don't want to see those, I saw the website". Then you suggest I talk to your friend, who put up the myspace page directly, because there is no greater authority than the author, right? Again, I say "I don't have to, I'm right, I saw the webpage". 

Now, most of the time, hopefully people are smart enough to not take information from anonymous people as gospel... but what if your priest isn't one of them, and because of my false rumor, you get kicked out of your church? Or even worse, what if your husband hears the rumor and just like you, takes anonymous information as gospel and starts divorce proceedings. 

That would be pretty shitty of me, wouldn't it? Well, while I admit the misinformation you are providing is probably not going to ruin anyone's marriage, your blatantly wrong information could cost someone money and is exactly the same situation. 

How about you lose that chip off your shoulder and that "I'm right" opinion of yourself and before you spread your blatant lies anymore, first consult with someone. For example, have you bothered emailing the actual creator of the spreadsheet to ask him/her if it was a bug or not and to explain what his numbers mean? Have you bothered, as suggested, to confirm your hypothesis with the government, to manually work out the problem yourself outside of the spreadsheet, or even just to verify the math that shows you are making two contradictory statements?

Or would you rather just screw over other people by feeding them false information rather than open yourself up to the possibility that just perhaps you aren't right every time. 

(By the way, before I even began replying to you I not only worked out the numbers manually on a brand new blank spreadsheet, but confirmed the proper treatment in the tax code in case I had overlooked something. As you had requested, I gave you the courtesy of my time to analyze the spreadsheet you were using and pointed out exactly where it was wrong, and I also notified the author of the spreadsheet about the error in his formula as a courtesy. It should be noted that you have not responded to a single mathematical proof which either indicates that you have done it and it has proven you wrong, and you refuse to admit it, or you haven't bothered, and yet, either way, you still intend to spread your misinformation.).


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## lb71 (Apr 3, 2009)

leslie said:


> TempoTrader has to realize that cardhu has a hate-on for every thing I say.


cardhu has found mistakes in my posts too. I don't take it personally, I take it as a learning experience. My original impressions were obviously incorrect. If it wasn't for him/her, people would then read my errors as truth (and I would still believe them to be correct), which is not my intent. This board is an educational tool, and mistakes will be made. No one likes to admit they are wrong, but it happens. Use it as a learning experience.

You have posted to that website on other threads. That information is not being used correctly, and in some cases is false. There are some good arguments against RRSPs, but you have not made any. RRSPs on the whole are a benefit to Canadians. You really need to step back and do some more research.


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## stardancer (Apr 26, 2009)

I'm not sure of what the argument is about and I am not good at math. It seems to be whether an RSP is a good savings vehicle or not.

I have also read that RSPs are not all they are cracked up to be. That may be true if one has a superb pension plan and plenty of other money in retirement. But, as an average, middle-of-the-road Canadian, this is what I have found-

Counting only our (married) OAS, CPP and DB pensions, we are making $55,200 annually or $4600 monthly before tax. Once both RIF withdrawals kick in, approximately $10,000 will be added to that amount. Now, $4600 is certainly enough to live on, but the extra income will really be nice. I will gladly pay the tax owing on the income, because when we had a young family, the tax break on the RSP contribution was greatly appreciated (no, I never took a loan for it); furthermore, it was almost a forced savings plan, without which, we would not have the $$ now.

I have a friend who refuses to save in an RSP or any other investment vehicle because she feels that she will be able to collect GIS. Frankly, I knew we would always be over the GIS limit, and I would rather live on $4600+/month than on $1895/month (married, full OAS, 0 other income).

Another point, the article by Retail Investor seems to focus on whether it's a good idea to take an RSP loan or not. My feeling is that it's like any other loan- don't take it unless you know you can afford to pay it back relatively quickly.

TFSA vs RSP vs non-registered savings: IMO, there is a place for all of them, at least in my life. I don't worry about which one will give a better long-term return. Each vehicle serves a different purpose and has different advantages.


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## leslie (May 25, 2009)

stardancer said:


> I'm not sure of what the argument is. It seems to be whether an RSP is a good savings vehicle or not.


 No that was not what it was about ... that is what cardhu tried to redefine it as. Look at my original post on this thread for the point I am making.

_"Although I agree with all the math above, it is measuring cash flows only. If your purpose is only to zero out the cash cost of the tax on the gain then they are correct.

But the charitable donation is a permanent tax benefit whereas the RRSP tax credit is only temporary until the plan is collapsed... at which point all the original tax credit PLUS all the income it earned is taken back by the government.

See the bottom of Sheet3 of this spreadsheet."_
...................................................................................................

The position of the detractors ended being: "The RRSP is NOT set up to protect your after-tax savings (and its income) from tax. The amount by which your after-tax savings (and income) is taxed a second time at withdrawal exactly equals the net benefit from the original tax credit. Therefore the tax credit IS a permanent benefit.

My position is that the RRSP's one and only purpose is to protect your after-tax savings (and its income) from tax. And that it accomplishes that. There is NO tax on on your savings on withdrawal. The withdrawal tax exactly equals, and cancels, all the benefits from the original tax credit. Therefore the tax credit is NOT a permanent benefit.


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## CanadianCapitalist (Mar 31, 2009)

I'm not sure I understand leslie's point entirely. It is true that, in theory, a RRSP is a tax deferral mechanism, not a tax break. You put in pre-tax dollars and are taxed on withdrawals. Also, in theory, RRSPs can hurt you if your average tax rate on the contributions is higher than the average tax rate on the withdrawals. In practice, unless you are Seymour Schulich, who reputedly has a RRSP valued in the hundreds of millions, you will have a much lower tax rate on withdrawals than on contributions. So in effect, you do get a tax break on contributing to a RRSP - you deferred the taxes on contribution, enjoyed tax sheltering of your investment growth and pay a lower tax rate on withdrawals.

Now, some Canadians, especially those in the lowest tax brackets when working would find it more advantageous to forego RRSPs entirely and save within a TFSA. But for the vast majority, RRSPs would still win out over the TFSA in saving for retirement.


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## stephenheath (Apr 3, 2009)

No, Leslie is not listening to what we are saying. There is only one problem with his/her statement.



> Although I agree with all the math above, it is measuring cash flows only. If your purpose is only to zero out the cash cost of the tax on the gain then they are correct.
> 
> But the charitable donation is a permanent tax benefit whereas the RRSP tax credit is only temporary until the plan is collapsed...


This part, no problem.



> at which point all the *original tax credit PLUS all the income it earned is taken back by the government.*


This point, problem. The spreadsheet Leslie is using itself says that it's model ONLY works if both the refund AND the credit are placed into the RRSP, which would not be the case if Leslie's statement were true. If the statement were true, the model would work whether the credit was put into the RRSP, kept outside the RRSP, or used as toilet paper.

Even more important, the original poster specifically said that they were looking to net out a tax liability, which means that course of action would NOT involve putting the RRSP tax credit into the RRSP, and thus *one of the fundamental requirements for the spreadsheet to be valid is not met and this spreadsheet is proof of nothing.*.

That spreadsheet, to make the point that the TFSA is equal to the RRSP if all tax rates are equal, assumes that the tax credit and it's earnings are taxed at 100% while the original contribution and it's earnings are taxed at 0%. Obviously, this is not true in the real world, any withdrawal is taxed at the withdrawal rate. 

In the end, the problem comes down to bad advice. If you are doing your own math, and contemplating putting money into an RRSP, you need to calculate not only the future value of the original contribution, but of the tax credit. Putting the tax credit into the RRSP or keeping it out will result in significantly different future values after withdrawal. Leslie is stating that this part of the calculation can always be ignored, and that is the error.

On another note, I have to disagree with you a bit on this one CC:



> It is true that, in theory, a RRSP is a tax deferral mechanism, not a tax break. You put in pre-tax dollars and are taxed on withdrawals.


There is a problem with the terminology... since we're assuming taxes as equal, it's true an RRSP won't give a tax break in terms of the %. And likewise, as long as you have positive returns, you will wind up paying more in total taxes than investing outside the RRSP, so that's not really a tax break. BUT, by putting your money into the RRSP and letting it compound, you wind up with a much higher future value than if you hadn't, and that isn't possible if it is solely a tax deferral mechanism, as that implies that at the end of any deferring there would be no net difference between using the RRSP or not using the RRSP (again, with equal tax rates).

I don't know a better way to say it... maybe a tax-deferring mechanism that boosts returns? 

Then again, if we agree that tax rates being equal the RRSP and the TFSA basically net out to the same future value, and the TFSA demonstrably does provide tax breaks (you don't pay tax on the earnings) then maybe we really should consider the RRSP to be a tax break?


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## cardhu (May 26, 2009)

leslie said:


> No that was not what it was about ... that is what cardhu tried to redefine it as.


What?!?!? ... what could possibly have led you to that conclusion? ... this is the crux of the problem, leslie ... I write all my posts using the english language, which on the surface would seem to be an applicable language for this forum, and yet you still have absolutely no idea what I’m saying. 



leslie said:


> The position of the detractors ended being: "The RRSP is NOT set up to protect your after-tax savings (and its income) from tax. The amount by which your after-tax savings (and income) is taxed a second time at withdrawal exactly equals the net benefit from the original tax credit. Therefore the tax credit IS a permanent benefit.


Once again, you obviously have no idea what I’ve been saying ... you can think this if you wish, but others will have no difficulty recognizing that there is no resemblance whatsoever between any of my comments and your twisted distortion. 



stardancer said:


> I'm not sure of what the argument is about ... It seems to be whether an RSP is a good savings vehicle or not.


No, not at all ... that has nothing to do with it. 

It is primarily about one simple thing ... leslie’s incorrect and illogical insistence that there is no value in the deductibility of RRSP contributions ... that all of the original tax break PLUS all the income it earned will always be taken back by government when withdrawn, in every case, regardless of ones’ income situation and the tax rates in effect in the year of the withdrawal. 

As I have explained to leslie in other threads, that may be the case for some people, but only in a very specific set of circumstances... most people, however, will not fit into that very narrow set of circumstances ... the majority of the population will face a lower tax rate on withdrawals than on contribution ... many people will keep a significant chunk of the income earned on the original tax break, in their pocket, after tax, to spend as they see fit ... some may keep ALL of it, and could even keep a portion of the original refund as well ... clearly, there is both value and permanent benefit in those cases. 

Tangentially, it is also about the weak-to-nonexistent logic used not only in formulating her position in the first place (she is simply parroting words she found at another website) but also in defending her position (such as her use of the _“retailinvestor said so”_ defense , the _“billy doesn’t like me”_ defense) ... and it is also a little bit about errors in leslie’s reference material ... the retailinvestor website... more on that below.

Steering back to the primary item ...

My position is...

 that the tax owing when money is withdrawn from an RRSP is determined by one’s income and applicable tax rates in the year of the withdrawal; and 
 that the tax owing may be substantially less than the sum of the amount of the original tax break on contribution plus all investment income earned on it ... therefore, the deduction at contribution may very well offer a significant permanent benefit.
Leslie’s position is .... 

 that the tax owing when money is withdrawn from an RRSP is determined by the tax rates that were in effect 3 decades ago when you made the contribution, and by the rate of return you managed to accomplish during those 3 decades; and 
 that the tax owing will always exactly match, and cancel, the original tax break on contribution, plus all investment income earned on it, regardless of current tax rates, and regardless of current income .... therefore the tax deduction is never a permanent benefit.
Note that these are differences of fact, not differences of opinion ... leslie’s position is simply wrong. 

Regarding retailinvestor, the problem with that spreadsheet, aside from what has already been pointed out, is that the thought process that produced it is bass-ackward ... retailinvestor first established his preconception (the same one leslie has been parroting), and then put together a series of calculations designed specifically to support that preconception, no matter what the inputs ... it’s a feedback loop ... he decides first what he wants the result to be, then manipulates the calculation to ensure that’s the result he gets, and then when he gets the result he manipulated the spreadsheet to produce, he says ... “see? I was right all along” ... it is a form of thinking that may fool some of the people some of the time, but ..........

The question of what the tax break was used for is a red herring ... it makes no difference ... money inside an RRSP is *always *before-tax money ... and the net amount invested, measured in after-tax dollars, is *always *less than the actual amount contributed ... but none of this makes the spreadsheet any less flawed ... I don’t agree with stephen as to the nature of the specific problems with the spreadsheet, but it is still a trainwreck of flawed logic, bad analysis, and suspect conclusions.



leslie said:


> And yes I will repeat the point in the future where relevant.


Naturally ... was there ever any doubt?


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## CanadianCapitalist (Mar 31, 2009)

stephenheath said:


> On another note, I have to disagree with you a bit on this one CC:
> 
> There is a problem with the terminology... since we're assuming taxes as equal, it's true an RRSP won't give a tax break in terms of the %. And likewise, as long as you have positive returns, you will wind up paying more in total taxes than investing outside the RRSP, so that's not really a tax break. BUT, by putting your money into the RRSP and letting it compound, you wind up with a much higher future value than if you hadn't, and that isn't possible if it is solely a tax deferral mechanism, as that implies that at the end of any deferring there would be no net difference between using the RRSP or not using the RRSP (again, with equal tax rates).


I think we have a misunderstanding here. I'm not assuming that the tax rates on contribution and withdrawal will be the same at all. In fact, I explicitly noted that the withdrawal rate is likely to be materially lower. By "deferral", I think you take it to mean that the same percentage of tax will be paid at a later date. I take it to mean that taxes are simply postponed, without any assumption on what that future rate would be compared to today. 

In reality, a RRSP is a tax break because the present value of the future tax obligation is almost certainly less than the taxes that are owed today. Typically, the contributions are made in high earning years and come off the top earnings and withdrawals are made in low income years.


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## leslie (May 25, 2009)

I do not agree with any of the positions above. They mis-state what the sheet3 of the spreadsheet says and shows. But most importantly they indicate that none of the posters understands what the RRSP* is and does*. There is a difference between knowing the calculations at each step and understanding the intent and effective result of the system. 

When I first saw the model about 15 years ago, there was an immediate "ah-haa" moment. It amazed me that it was never part of my tax training. I saw it again - in the MoneySaver I think - when the TFSA was introducted. There is nothing new about the model, nor is it the creation of that website.

Think of the RRSP model like the dividend income model. You can get all hung up in the dividend tax calculations and completely lose track of its model of summing the personal and corporate tax. You think the DivTxCr is calculated from your own personal numbers, but really it equals the tax paid within the issuing company. The model uses a presumption as to the rate of tax that company pays....

.... just like the RRSP model uses the presumption that the tax rates have not changed between input and draws. The original tax rate determines the percentage of the portfolio coming from the tax credit. Taxing the total portfolio, at that same rate, on withdrawal will necessarily equal 100% of the tax credit portion. You have to differentiate in your minds between the calculation (based on the whole portfolio) and the intent and effect (take back future value of the original tax credit ONLY).

You won't understand the model until you simplify it by accepting that the presumptions are correct. Only once you understand the model can you appreciate what affect any differences from the presumption make. Only then can you appreciate when people are making one-sided presumptions. Only then can you see where the costs/benefits lie. 

Cardhu says "money inside an RRSP is always before-tax money" and cannot see that that equals the sum of after-tax savings plus the tax credit. CC says "in theory, a RRSP is a tax deferral mechanism" or "a tax break because the present value of the future tax obligation is almost certainly less than the taxes that are owed today". Stephen call it "a tax-deferring mechanism that boosts returns". 

None of you have allowed the model to show you that *the RRSP's one and only purpose is protect your after-tax savings from tax on itself or on its earnings* ... just like the TFSA.

Government officials did not sit down to create a system where you gain from tax credits or tax deferrals or tax deferrals that boost returns. Their objective was to allow people to save for retirement without incurring additional tax on their savings. They accomplished that objective as shown by the first column of the spreadsheet's model.


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## CanadianCapitalist (Mar 31, 2009)

leslie said:


> .... just like the RRSP model uses the presumption that the tax rates have not changed between input and draws. The original tax rate determines the percentage of the portfolio coming from the tax credit. Applying that same percentage to the total value at withdrawal will necessarily equal 100% of the the future value of that tax credit portion. You have to differentiate in your minds between the calculation (based on the whole portfolio) and the intent and effect (take back future value of the original tax credit ONLY).
> 
> You won't understand the model until you simplify it by accepting that the presumptions are correct. Only once you understand the model can you appreciate what affect any differences from the presumption make. Only then can you appreciate when people are making one-sided presumptions. Only then can you see where the costs/benefits lie.
> 
> None of you have allowed the model to show you that *the RRSP's one and only purpose is protect your after-tax savings from tax on itself or on its earnings* ... just like the TFSA.


I don't think any of us are disagreeing that if the tax rate on RRSP contributions and withdrawals are exactly equal, a RRSP is no different from a TFSA (ignoring for a moment the differences in withdrawals between TFSA and RRSP on other income-tested benefits). But what we are saying is that for most people, the tax rates on withdrawals are lower.

I can show this with a very simple case. Assume I am in the top tax bracket and contributed to the RRSP this year. I put $5,000 into my RRSP but used only $2,500 of my after-tax savings to do so. I also put $2,500 into a TFSA. Next year, I have no income. If I withdraw from my RRSP, I'll have $5,000 but only $2,500 from a TFSA withdrawal. Admittedly, this is an extreme example. The tax rate on the RRSP contribution was 50% but 0% on the withdrawal. But this shows the advantage that RRSPs have over TFSAs when tax rates are materially different. That's how it is for most people.


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## stephenheath (Apr 3, 2009)

First of all, I have been notified by a number of posters that Leslie is the author/owner/creator of the retailinvestor website, so basically what is happening is someone giving their own opinion as proof for their opinion. It is interesting that Leslie is unable to back up his assertions with any other site other than to constantly refer back to his own.

That said, in the post above Leslie indicates that now it is no longer about his spreadsheet modelling reality incorrectly, and therefore providing incorrect conclusions, but that we don't understand the purpose of the RRSP. This, if anything, is a true red herring because "purpose" is not a part of calculating actual values. More to the point, noone has argued with Leslie's statement of purpose, in fact, I agree 100% with his statement that 



> the RRSP's one and only purpose is protect your after-tax savings from tax on itself or on its earnings ... just like the TFSA.


Even though, as CC pointed out, with different deposit and withdrawal rates people may find a secondary use for them, much like baking soda exists as a cooking ingredient, but was also found to be excellent at absorbing smells.

Of course, Leslie isn't talking purpose but calculation when he advises that


> all the original tax credit PLUS all the income it earned is taken back by the government.


The simple fact that is that Leslie has established a faulty causal link due to the coincidence that IF the RRSP credit is included as part of the contribution and IF the tax rates are equal for both deposit and withdrawal, then the total amount of taxes on withdrawal of the funds will equal the sum of the tax credit and the earnings on that tax credit. It's even a moot point when the assumptions match. If the original poster, for example, was assuming the tax rates were equal and that the credit was put into the RRSP then he could simply, as Leslie suggests, calculate the tax free earnings on his original contribution to come up with a future value. But in this case, the goal was to cancel a tax payment, and therefore, one of the necessary components, that the RRSP credit is included as part of the contribution was not met, and therefore, Leslie's shortcut provides INACCURATE future values, which has nothing to do with "the purpose". 

In short, Leslie has found out that screwdrivers are a great, quick way to use screws, but is now telling everyone that screwdrivers are all you need for screws, nails, tacks and chains.


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## leslie (May 25, 2009)

I've been just waiting for someone to say that. ("I don't think any of us are disagreeing that if ...... then an RRSP is no different from a TFSA")

You want your cake and eat it too. You want to be able to claim that the savings grows tax-free AND that there is residual value from the original tax credit.

The withdrawal taxes have to diminish SOME pot. 

If you claim they do not touch the after-tax savings and its income, like the TFSA, then you are accepting the model in the spreadsheet ... with its conclusion that there is no value from the tax credit.

Stephen argued that the withdrawal tax DOES tax the savings (their cumulative income and the principle for a second time). It is only by making this claim that you can end up with anything left from the original tax credit. This is the only argument that allows you to conclude that the tax credit has residual value. This is the only argument that allows you to say my original post is "rubbish".

Go to the spreadsheet and tell us how you would allocate the total tax (cell I38) between the first two columns. It has to diminish either the savings OR the tax credit. You have to choose between sheltering savings OR having a residual value from the tax credit.

----------------------------------------------------
Your comments on the changing tax rates: There are three possible assumptions: increased rate, decreased rate, or same rate. I feel it perfectly appropriate to pick the last for any model. That lets everyone work from there with their own assumptions.

You and Cardhu have decided that for yourselves, and the people you are addressing, you expect a lower tax rate in retirement. Personally I will face a higher rate because I have been successful in saving the necessary wealth. I hope that my investing advice allows my readers to be successful too. I don't force my presumptions on anyone, nor does the spreadsheet model. It is an input variable.


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## stephenheath (Apr 3, 2009)

leslie said:


> I've been just waiting for someone to say that. ("I don't think any of us are disagreeing that if ...... then an RRSP is no different from a TFSA")
> 
> You want your cake and eat it too. You want to be able to claim that the savings grows tax-free AND that there is residual value from the original tax credit.


No, Leslie, and it's sad that you have to misquote to try and make your point... the part that you replaced with a "...." says specifically IF the tax rates are equal and IF the RRSP tax credit is put into the RRSP. That is important because IF the tax rates are not equal OR the RRSP tax credit is not put into the RRSP, then that is NOT true. 

What you are doing would be equivalent to me calculating that IF Jupiter were to shift it's orbit 100 million kilometers closer to Earth, then the effect of gravity on Earth would halved, and then saying "watch out, if Jupiter moves 6 inches we'll all jump twice as high". You can't have preconditions to reach a conclusion then assume that conclusion exists without the preconditions.

I am also NOT saying the savings grow tax-free AND there is residual value on the credit, I am saying both the savings and the credit grow tax free and then are BOTH taxed at the equivalent rate upon withdrawal.



> The withdrawal taxes have to diminish SOME pot.


Of course they do, they diminish BOTH pots equally at the tax rate, that's the point! You're arguing that one pot is tax free and one pot is 100% tax, but that is NOT the reality, they are both taxed at the SAME rate. The total tax is divided proportionaly between the two. If you deposit a $1000 contribution and a $500 credit into an RRSP and then withdraw it out one a time with a 50% tax rate, each withdrawal will give you 50 cents. You won't get 1000 that are $1 and 500 that are $0.



> If you claim they do not touch the after-tax savings and its income, like the TFSA, then you are accepting the model in the spreadsheet ... with its conclusion that there is no value from the tax credit.


The spreadsheet's model does not say there is no value from the credit, that would mean that the original contribution and it's earnings were taxed at the going tax rate and the tax credit and it's earnings were taxed at 100%. The model says that BECAUSE of the coincidence that the total tax = the sum of the tax credit and it's earnings, WHEN the requirements of a contributed RRSP credit and equal tax rates is met, instead of working out two seperate cash streams and applying tax to both, you can use a "quick" calculation of just multiplying the original contribution to the tax free gains. If there is, as you say, no value from the credit... remove it from your spreadsheet. Assume you throw the credit away day one, and look what it does to your results and how it disproves your own words. 



> Stephen argued that the withdrawal tax DOES tax the savings (their cumulative income and the principle for a second time). It is only by making this claim that you can end up with anything left from the original tax credit. This is the only argument that allows you to conclude that the tax credit has residual value. This is the only argument that allows you to say my original post is "rubbish".


Exactly, that is the KEY point. I will happily agree that WHEN the tax rates are equal AND the RRSP credit is also contributed we are talking semantics and that the numbers we arrive at in the end will be equal. The part you DON'T SEEM TO GRASP is that YOUR conclusion DOES NOT WORK IF the tax rates are unequal OR the RRSP credit is not recontributed. In this case, the RRSP credit would not have been recontributed, so your argument IN THIS CASE is rubbish.




> Go to the spreadsheet and tell us how you would allocate the total tax (cell I38) between the first two columns. It has to diminish either the savings OR the tax credit. You have to choose between sheltering savings OR having a residual value from the tax credit.


Let me quote exactly what I said before:



> Row 38 of sheet 3 is the tax calculations upon withdrawal. Column I is the tax calculation for the entire RRSP, the initial contribution + the refund and is correct with the formula -I37*H16 (I37 = Total Withdrawal, H16 = Tax Rate). Column H is supposed to be the tax on the withdrawal of the credit and should therefore be the formula -H37*H16 (H37 = Credit Withdrawal, H16 = Tax Rate), but whoever did it screwed up and just set it as -H37, which is ONLY the Credit Withdrawal without applying the tax rate. Column G is supposed to be the tax on the withdrawal initial contribution, and could either be calculated as -G37*H16 (G37 = Contribution Withdrawal, H16 = Tax Rate) OR as the spreadsheet author chose to do, I38 - H38... in other words, the total that is already calculated minus the other number already calculated, so take whatever is left. This method avoids rounding errors, but because he screwed up the second total, it screws up this one as well.


In other words, if the withdrawal rate is 44% of the total, it is 44% of each component. 44% of A + 44% of B = 44% of (A+B).



> ----------------------------------------------------
> Your comments on the changing tax rates: There are three possible assumptions: increased rate, decreased rate, or same rate. I feel it perfectly appropriate to pick the last for any model. That lets everyone work from there with their own assumptions.
> 
> You and Cardhu have decided that for yourselves, and the people you are addressing, you expect a lower tax rate in retirement. Personally I will face a higher rate because I have been successful in saving the necessary wealth. I hope that my investing advice allows my readers to be successful too. I don't force my presumptions on anyone, nor does the spreadsheet model. It is an input variable.


Leslie, I have never said anything about changing tax rates, and have made every post confirming the assumption that the tax rates are equal and I agree with you that for simple planning purposes it is most appropriate. What we have stressed is that for your spreadsheet and conclusions to be valid, the tax rates MUST be equal AND the tax credit must be added into the RRSP.




In fact, Leslie, this is why I find discussing this with you so frustrating, and why I'm not going to bother anymore.

The spreadsheet is quite good within it's scope, which is conditions where the tax rates are the same AND the RRSP credit is put into the RRSP. It is the best layout I have seen to show why the TFSA and RRSP are essentially equal in terms of returns (the side benefits like not counting against OAS and not having RRIF style forced withdrawals are what make TFSA > all). When those conditions are met, treating the original contribution like a TFSA contribution to calculate the future value instead of calculating the seperate streams is an EXCELLENT shortcut. I happily acknowledge ALL of those great things about the spreadsheet.

The ONLY issue we have with it, and what you are saying, is that you are saying the conclusions apply even when the RRSP credit is NOT put into the RRSP. YOUR OWN SPREADSHEET shows you that is wrong, and yet you keep twisting our words to refuse to acknowledge that single point.


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## leslie (May 25, 2009)

Did you not realize I was responding to CC not you?


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## stephenheath (Apr 3, 2009)

Leslie,

While I had indicated I do not wish to continue discussing this with you, and I do intend to continue that self-imposed moratorium, I do wish to apologize. Due to the order of the posts, there not being an address in your post, and the fact that CC and I at various points in the thread had said virtually identical statements, I did misconstrue your post as being a response to mine.

In light of it being to CC, the issue of it demanding answers to the same questions you had already asked me is rather moot, and it was definately not my intention to answer questions posed to CC on his behalf, I leave that to him.

Steve.


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## CanadianCapitalist (Mar 31, 2009)

leslie said:


> You want your cake and eat it too. You want to be able to claim that the savings grows tax-free AND that there is residual value from the original tax credit.


That is precisely what I'm saying. For most people, the savings grow tax-free AND there is a residual value from the tax credit. That is why a RRSP is better than a TFSA (again for most people).



> Your comments on the changing tax rates: There are three possible assumptions: increased rate, decreased rate, or same rate. I feel it perfectly appropriate to pick the last for any model. That lets everyone work from there with their own assumptions.
> 
> You and Cardhu have decided that for yourselves, and the people you are addressing, you expect a lower tax rate in retirement. Personally I will face a higher rate because I have been successful in saving the necessary wealth. I hope that my investing advice allows my readers to be successful too. I don't force my presumptions on anyone, nor does the spreadsheet model. It is an input variable.


You can assume anything you want. The question is: is it reasonable? You can assume that in the future all RRSP withdrawals will be taxed at 75%. Under that scenario, a RRSP won't make sense for anyone.

If I have a largish RRSP, I'll simply retire earlier than planned. Problem solved!


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## leslie (May 25, 2009)

I agree (and always have) that there is a benefit from a reduction in the tax rate. And that that is what makes RRSP's better than TFSAs when there is that reduction in tax.

But that does not address the claim that the tax credit IS of value. Try inputting into the model the most common presumption under your scenario:
* government programs use use up personal deduction, so RRSP draws are taxed at first tax bracket = 22.9%
* Contributions were made (when earning between $41,000 and $81,000) at the second 33% tax bracket.

Without changing the other assumptions, which you might want to, the benefit from the change in rates is $2,194 at the end of 40 years. *The benefit is only 30% of the tax credit's value *(2,194 / 7,169).

So the advice you should have given the original poster, after my first post, would be:

_"While Leslie's post is correct that the tax credit itself is a value that gets reversed on withdrawal, IF you expect your tax rate in retirement to be lower, there would be an additional value to an RRSP contribution equal to (very roughly) 30% of the tax credit. Therefore you could cancel out your capital gain with RRSP contributions that are *3 or 4 times* the amounts calculated above."_

Now that response is completely different from the response posted:
_"Rubbish ... the tax break may very well grow tax-free"._


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## OhGreatGuru (May 24, 2009)

1. I moved here from the Moneysense Forum to get away from diatribes like this.
2. OP's original question had nothing to do with TFSA's, so why have the merits of TFSA versus RRSP become th topic?



leslie said:


> A
> 
> But the charitable donation is a permanent tax benefit whereas the RRSP tax credit is only temporary until the plan is collapsed... at which point all the original tax credit PLUS all the income it earned is taken back by the government.


3. A charitable donation has no Future Value (FV) except in an existential sense in the next life (unless you are involved in one of thsoe fraudulent "charity" schemes that promise to pay money back to you.) A contribution to an RRSP has a Future Value that wil be returned to you with interest, even though taxed. So comparing the two solely on the tax cost is ludicrous.


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## cardhu (May 26, 2009)

Presenting a cartoonish parody of the discussion in this thread, to illustrate its absurdity ... 

leslie says ...... _"1 + 1 = 2 ... and ... 2 + 3 = 5 ... and ... 8 + 5 = 6 ... and ... 4 is greater than 2"_.

I say ....... _“uh, wait a minute, leslie ... 8 + 5 does not equal 6 ..."_ 

leslie says ....... “but look at this spreadsheet... it says right there in cell H35 that 8 + 5 *DOES *equal 6 ... that is PROOF”

stephen says ...... _”uh, wait a minute, leslie ... the formula in that cell is rigged to produce a result of “6” regardless of what input numbers are provided ... the spreadsheet is wrong ... 8 + 5 does not equal 6 ...”_

leslie says ... ... _“THE SPREADSHEET IS CORRECT ... the above posts are arguing that 1+ 1 DOES NOT equal 2; and that 2 + 3 DOES NOT equal 5; and that 4 is LESS than 2.” _

CC says ... _“uh, wait a minute, leslie ... I don’t think anyone is disagreeing that 1 + 1 = 2 ... but 8 + 5 does not equal 6”_

leslie says ... _“*a-HA !!!! *... I’ve been waiting for someone to say that ... IF you agree that 1 + 1 = 2, then you are accepting the model in the spreadsheet, along with its conclusion that 8 + 5 = 6.”_

leslie follows with...... _“OK, ... I agree (and always have) that 8 + 5 does not equal 6 ... the response to my post should have been ... “attagirl, leslie, for recognizing that RRSP withdrawals taxable... IF the tax rate on withdrawal is lower, then 8 + 5 does not equal 6 ... it equals 4.””_

........

Notice the resemblance?


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## cardhu (May 26, 2009)

leslie said:


> So the advice you should have given the original poster, after my first post, would be ......


The original response posted is correct ... the suggested alternate is incorrect.

When others present bad advice I will call them on it. 

This 30% figure is something you pulled out of thin air ... or more precisely, it is derived from a hypothetical tax scenario that you pulled out of thin air, using tax rates (33% and 22.9%) that you pulled out of thin air ... they are fictitious rates, no such pairing of marginal rates exists in Canada ... in a real world case, the actual permanent value attributable to the deduction varies substantially... to suggest that it would be equal to (very roughly) 30% is both factually and theoretically wrong.



leslie said:


> none of the posters understands......
> cardhu ... cannot see ... .


You’re doing it again ... you consistently misrepresent and distort the content and meaning of just about every post you comment on … take the time to read the posts, and more importantly take the time to THINK about the content, before replying ... none of us has been saying what you seem to think we have been saying. 

Fabricating a false or distorted interpretation of another’s position, in order to tear it down is a lame trick to divert attention from the real question ... but if you had a valid and defensible position in the first place, there would be no need to use such parlour tricks. 



leslie said:


> I agree (and always have) that there is a benefit from a reduction in the tax rate.... But that does not address the claim that the tax credit IS of value.


Of course it does ... Leslie says there is a benefit from a reduction in the tax rate, but she cannot see WHY there is a benefit from a reduction in the tax rate ... the reason that benefit exists is precisely because the tax deduction DOES have value ... because the gov’t does NOT "take back" all of the original tax break, PLUS all of the income earned on that amount. 

Leslie, you are contradicting yourself. 



leslie said:


> You want your cake and eat it too. You want to be able to claim that the savings grows tax-free AND that there is residual value from the original tax credit.


Personally, I will have no trouble having my cake and eating it too ... nor will most Canadians ... nor would you if you were to apply some financial planning to your situation ... my RRSP returns will grow tax-free AND there will be a rather large pile of residual value from the original tax deduction ... you want to be able to claim that I cannot do that, but you are both factually and theoretically wrong.



leslie said:


> I will face a higher rate because I have been successful in saving the necessary wealth.


Flawed logic ... you assume incorrectly that a lower tax rate correlates to a lack of success in saving the necessary wealth ... I will face a lower tax rate because in addition to having been successful in saving the necessary wealth, I also employed effective tax reduction strategies... I freely admit that my tax rate on withdrawals would be less low if my wealth were higher, but my wife and I decided that we are willing to settle for a retirement income of less than $2million/year ... the extra time and toil to get beyond that just wouldn’t be worth it to us. 

The truth is, whether one enjoys a lower tax rate on withdrawals depends more on circumstance than on success in wealth-building ... a married couple will have more opportunities for income-splitting, a single person will have none ... a person with a solid and generous defined benefit pension will have fewer opportunities to gain from such rate differentials, a person with no DBP will be have more ... a person who earns a high salary will have more opportunity to gain from such rate differentials, a person who earns minimum wage will have less. 



leslie said:


> the RRSP's one and only purpose is protect your after-tax savings from tax on itself or on its earnings ... When I first saw the model about 15 years ago, there was an immediate "ah-haa" moment ... I have only seen it in one additional place since - the MoneySaver I think


The fact that RRSP delivers after-tax returns equivalent to a tax-free non-registered investment, when the tax rate is equal at contribution and withdrawal, is hardly a state secret ... this phenomenon has been commonly and openly discussed (among knowledgeable investors) for quite a bit longer than 15 years and is extremely common knowledge among those who take an interest in their own finances. 

That you only noticed it mentioned once since your recent ah-haa moment further confirms that either (A) you don’t read anyone’s posts other than your own, or (B) you read them but you don’t understand them. 

......

Your primary mistake, leslie, lies in thinking that the “purpose” of the RRSP (your perception of the purpose, at any rate) has any bearing on what ACTUALLY happens in the real world ... You have a theory, and that’s fine ... but in the world of cognitive humans, theories and hypotheses are tested against actual real-world data … when the real world does not behave the way the theory suggested that it should, it is customary to conclude that the theory is flawed … it is highly uncommon in such cases to conclude that what happens in the real world isn’t really happening.


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## HaroldCrump (Jun 10, 2009)

_Never let the facts get in the way of the truth...._


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## leslie (May 25, 2009)

This issue was continued at this thread. You can see that Cardhu ends up validating the spreadsheet (Sheet 3) calculations. 

You will also see how he promises "half a million dollars" to "most people" by inventing an example that 'proves' it. He chose to NOT disclose his presumptions - that turn out to be ludicrous and wrong. His choice to make that post should be considered by ib71 and canadianbanks.

Even his extreme assumptions cannot produce a benefit from changing tax rates equal to the original tax credit that he still claims is a benefit. His own example produces a fictional benefit equal to only 5/8ths of the tax credit.


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## cardhu (May 26, 2009)

_"You will never correct by logic a man’s error, if that error did not get into his mind by logic.”_ (Samuel Clemens (or so I’m told))
_“Prejudices are rarely overcome by argument … not being founded in reason, they cannot be destroyed by logic”_ (Tryon Edwards)

These quotes capture the essence of leslie’s failure to understand the contents of other’s posts ... she is immune to logic, ignores proofs, and continually misses (or perhaps deliberately avoids?) the real points, while flailing around in the details of irrelevant distortions that are the product of her own confused misinterpretations.


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## cardhu (May 26, 2009)

Leslie, get a grip ... I never promised anyone anything, which is perfectly obvious and easily verifiable for anyone with one-sixteenth of their wits about them ... I also never said that the benefit derived from the growth of the original tax break would “equal” anything in particular ... and it takes a certain Dr. Seussian form of illogic to suggest that I somehow validated retailinvestor’s spreadsheet calcs ... this I did not do ...this strategy of yours, to fabricate lies about what “the other guy” said, is getting tiresome ... just how gullible do you think “your readers” are, that they could fall for such a transparent and dishonest tactic?

My presumptions are and were ... (1) that RRSP contributions are deductible, and (2) that RRSP withdrawals are taxed as ordinary income ... are these the presumptions you consider ludicrous and wrong? 

The rates used in my example are reasonable and real ... definitely well within the realm of the possible ... you should never assume something can’t exist merely because you personally don’t understand it ... your various objections to those rates were illogical and irrelevant ... your posts indicate that you understand neither RRSPs nor the Canadian tax system.


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## tbrunch (Jun 1, 2009)

stephenheath said:


> Leslie,
> 
> While I had indicated I do not wish to continue discussing this with you, and I do intend to continue that self-imposed moratorium, I do wish to apologize. Due to the order of the posts, there not being an address in your post, and the fact that CC and I at various points in the thread had said virtually identical statements, I did misconstrue your post as being a response to mine.
> 
> ...


To: *stephenheath*

"_In light of it being to CC, the issue of it demanding answers to the same questions you had already asked me is rather moot, and it was *definately* not my intention to answer questions posed to CC on his behalf, I leave that to him."_

Come on stephenheath, "definitely" is a very common word and you spelled it wrong.

So you say you have an MBA? What did you study there? Spelling?


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