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Building Wealth through Saving and Investing

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Upcoming Tax Free Savings Accounts (TFSA)



With the big hype around the upcoming Tax Free Savings Accounts, I decided to do some research to see which banks and discount brokerages will be offering the product.  I imagine that as we get closer to the launch date (Jan 2009), we will see more of them popping up.

As of today though, here are the companies that will be offering a TFSA:

ING Direct (high interest savings account) (Get the ING $25 referral bonus)

While we can’t help you avoid taxes in 2008, we can pay you more than enough bonus interest to cover those taxes! Effective January 1, 2009, funds deposited in the promotional Tax-Free Investment Savings Account opened between October 4 and December 31 will be transferred to a new Tax-Free Savings Account so you won’t miss a minute of Tax-Free interest.

Open an ING DIRECT promotional tax-free Investment Savings Account today and on December 31st we will double your interest payment. This should be enough to cover any tax you’ll need to pay on interest earned and will help you get a head start for tax-free saving in January.

Royal Bank (savings and investment accounts)

  • Choose from a variety of investment options: RBC Funds, RBC GICs and RBC Savings Deposits.
  • You don’t lose the contribution room if you make a withdrawal, but you do need to wait until the next year to re-contribute the money.
  • Through a TFSA at RBC Direct Investing you will be able to create a diversified portfolio with access to a broad selection of investments including: stocks, bonds, guaranteed investment certificates (GICs), and over 2500 mutual funds.

Scotia Bank (savings and investment accounts)

  • Choose from a range of investments like mutual funds, savings accounts, and GICs.
  • All the income (interest, dividends and capital gains) earned in your Scotia® TFSA are tax-free for life.

Bank of Montreal (unconfirmed – I assume savings and investment accounts)

  • BMO Financial Group will offer the Tax-Free Savings Account in 2009. Check back regularly as additional information will be added as it becomes available.

CIBC(unconfirmed – I assume savings and investment accounts)

  • Most RSP eligible investments such as cash deposits, GICs, mutual funds, stocks and bonds
  • All income earned in your TFSA, whether interest or other investment income, is tax-free

Toronto Dominion Bank (unconfirmed – I assume savings and investment accounts)

Starting January 2, 2009, there’s a great new way for you to save money. TD Canada Trust will be offering the new Tax–Free Savings Account, which was recently announced by the Canadian government in the 2008 budget. A Tax–Free Savings Account (TFSA) is a flexible investment account that allows you to earn investment income without paying taxes and gives you access to your money whenever you want it.

PC Financial (high interest savings account)

That’s right. Every dollar of interest earned will be tax-free – for faster savings – when you contribute your funds to the tax-free savings account that will soon be available from President’s Choice Financial services.

E-Trade (Investment account) ($9.99 – $19.99/trade)

Starting January 2009, E*TRADE Canada will be offering the new Tax-Free Savings Account, which was recently announced by the Government of Canada in the 2008 Federal Budget.

An E*TRADE Canada Tax-Free Savings Account (TFSA) is a flexible investment account that allows you to invest in eligible investments without paying taxes on the investment income you earn within the TFSA.

  • Contribute up to $5,000 each year starting January 2009
  • Investment income (interest, dividends, and capital gains) earned in your E*TRADE Canada TFSA is tax-free
  • You can withdraw money from your TFSA for any reason, and all withdrawals are tax-free

Questrade (Investment account) ($4.95 – $9.95/trade)

  • The 2008 federal budget introduced a flexible new investment vehicle for Canadians, the tax-free savings account (TFSA). Starting in 2009, Questrade clients will be able to contribute up to $5,000 annually into a TFSA, where savings can earn dividends and capital gains tax-free. For savvy investors, this can improve gains significantly.

I’m thinking that most of the big banks will offer a high interest savings account for the TFSA, but they won’t be as competitive as online savings account companies like ING Direct and PC Financial.

The value with the banks is with their discount brokerage branch where you can invest the money to grow the account over the long term.  Since the accounts will be small initially, I’m assume that the trading commissions will be fairly high ($30/trade).  The Questrade TSFA looks like it may be the best solution as an investment account in the first few years to keep trading costs as low as possible.

Are you guys as excited about the TFSA as I am?





76 Comments, Comment or Ping

  1. 1. Traciatim

    Thanks for the info, I was only aware of RBC and ING, I guess their advertising is working ;)

  2. 2. Mat

    Citizens Bank has confirmed that they will be offering the TFSA on their savings accounts.

    https://www.citizensbank.ca/Personal/Products/TaxFreeSavingsAccount/?lpos=hp_left&lid=tfsa

  3. Definitely excited :). I’m glad to see that Questrade will be offering a TFSA- that will likely be the route that I will go.

    Scotia has been advertising some higher-rate GICs that they will automatically transfer into a TFSA on Jan. 2, and I believe that BMO was offering something similar. Not as appealing as the ING promotion, but a good option for anyone looking to avoid the rush in the new year.

  4. I wish I was but I’m in New Zealand and we don’t have anything like what you’re describing here. We have something which can help lower the tax-rate you pay on interest but in reality it’s nothing much.

  5. 5. DBennett

    I WAS extremely excited. Until my taxable investments dropped from $5500 to $3200 odd in two months. Being a university student, the 5k would have maxed out my TFSA, but now I’ll probably front my student line of credit (4.75% interest, interest only payments) to top it up. Boo earns for the financial markets right now. The only positive is that I have a good capital loss available for a later date.

  6. 6. Greg

    I’m definitely excited. With a paid-off mortgage (I was debt-averse before being debt-averse was cool) and no RRSP room (thanks to a defined-benefit pension plan), maxing-out the combined $10K contribution room for my wife and myself will be a financial objective for 2009. Kudos to the Conservatives on this move.

    Now, if only they can do something about income-splitting …

  7. 7. Chuck

    I’m excited. I’ve been preaching the gospel of the TFSA to my family and close friends for months.

    I’ve read an interesting economic report on them by CIBC. They extrapolated the british numbers and expect about 25% of people to max out there contribution, but the average contribution to be around $2k

    I’m starting to rethink my allocation strategy on them. With a lot of good dividend yeilds on US stocks out there it might be worthwhile to put my US high-dividend stocks in a TFSA, and tax shelter the 7% yeilds rather than my 3% yielding emergency fund

    I’m not sure for all the banks, but TD Waterhouse looks at all your accounts with them when determining pricing.

  8. 8. Nurseb911

    Thanks for the comparison. I’m sure there will be tweeks to the plans as one competitor atempts to trump the others. My plan so far is to use either ING or TD because of existing accounts that I currently have with both that should help with the transition from a savings account to TFSA.

  9. 9. David V

    I might remember that this was already discussed on the site, but now that we have some more details of the TFSA, what are peoples thoughts of RSP versus TFSA?

    RSP gives you the tax rebate now, but TFSA lets you make gains without future taxes. My thought right now is to max RSP and take that tax rebate and put it in TFSA.

    I may also do the RSP and take the rebate and pay down my mortgage (assuming I eventually have one).

    Thoughts?

  10. I’m definitely excited! The introduction of the TFSA will completely change my retirement saving strategy.

    Since I have a pension with the federal government, I’ll now be maxing out my TFSA every year before contributing anything to my RRSP (which is currently maxed out).

    I’ve already opened one with ING (6% interest!) as a temporary measure, but since I’m looking to hold ETFs and stocks, I’ll be opening a TFSA with a online broker in January.

  11. 12. Greenhouse

    Since I was debating having an Emergency Savings Fund, the TFSA makes it easy to consider. It sits there growing in a high interest savings account and is still easily accessible in case of emergency. In the odd event you need to access it, you only have to wait a year before that contribution room comes back.

    I’ll probably put up to $8k (by year 2) in high interest savings to act as my emerg fund, then put remaining room from then on in investments, say US dividends for example.

  12. 13. DK

    A while back I spoke to my discount broker, Tradefreedom, and they said they will also be offering a TFSA. Thought I’d share.

  13. 14. TStrump

    Definitely excited.
    Probably going with ING and will max it out each year.

  14. 15. Navvy

    I can’t wait to see what the service fees will be on the big banks TFSAs. Anyone heard anything?

  15. 16. Sampson

    I’m certainly looking forward to this. I project it will eventually become my families primary account for retirement savings. I suppose we’ll eventually figure out how to best use it (i.e. high volume trading, since capital gains will no longer be a tax ineffective mode of investing, and foreign dividends).

    One thing I hadn’t though about until today, I wonder how large of an impact this will have on the taxes received by the Tax Man.

    I’ve also read an account of how the projected median $$$ value of the accounts will be low, since lower income households are unlikely to take advantage of the TFSA (much like RSPs). Now, if only I was wealthy, had 2-3 kids, maxed out spouse and my RSPs, then pumped ‘savings’ into the kids accounts. What sorta taxes would be avoided. I’m guessing a lot!

  16. 17. john

    My plan is to DRIP stocks all year and then deposit the certificates into an E-Trade or similar TFSA thus saving the comissions. I’m sure there will be annual fees until a certain balance is reached though. Also, I’ll be moving my emergency fund into the PCF TFSA.

  17. 18. Bert

    You are correct, Sampson. This move does (regressively) shift the tax burden to the working poor.

  18. 19. Rick

    Hey, does anybody know if US or foreign stocks will be subject to the 15% witholding tax?

  19. 20. Konstantin

    @Rick:
    I think they still will be because TFSA is not part of the US-Canada tax treaty and all US-source income will be subject to the 15% withholding tax.

    Furthermore, the TFSA’s contributions are made with after-tax dollars (no tax rebate) as any non-registered (and non-exempt from withholding tax) investments unlike RRSP.

  20. 21. Marianne O.

    Looks like TFSAs will be available through both TD Canada Trust and TD Waterhouse (ref. http://www.tdwaterhouse.ca/tfsa/)

    Hopefully the TDW option will allow use of the online WebBroker application to make trades within the TFSA. I’m already using WebBroker for my self-directed RSP (holding TD efunds), so it would be great to be able to manage both accounts through the same interface.

    Does anyone else think that it’s misleading for TFSA players (especially ING) to be hyping only one approach to using the TFSA? They sure aren’t advertising the fact that the account can accommodate most kinds of investments available to RRSPs. Instead the ads are all about the low-single-digit savings account rate available from the issuing bank.

    I can’t tell if this is primarily because the banks prefer that customers take that path, or because they don’t want to scare the folks who are currently leery of the stock market… probably both! But it definitely doesn’t seem to be an “informed choice” kind of campaign.

  21. 22. Sam Li

    There is another player in town ICICI bank http://www.icicibank.ca

  22. 23. Steve

    A quick question about the amount/year. You get 5k the first year, but what if during the year your investments/savings grow to above the 5k? Are you subject to the penalty if you don’t withdraw below? Or is the 5k only for the amount you put in?

  23. 24. Traciatim

    Steve, as far as I was aware the limit is only contribution room not total value room. That makes putting in 5K per year and having it grow no problem.

  24. 25. Mike

    Thanks for taking the time to post this information, I was working through the different offerings out there from a stock trading perspective to put on my own blog http://www.tradelikeachamp.com however now I think I will just tell forward my readers here. Thanks again.

  25. 26. cannon_fodder

    I really like the idea of the TFSA but doubt I’ll be able to take much advantage of it in the next couple of years. Maximizing RRSP contributions, RESP contributions, paying down the mortgage and trying to take advantage of a Smith Manoeuvre setup will likely not leave any money lying around for the TFSA at this point. That is why I like the fact that the government will leave that room sitting around.

    I’ve played around with a spreadsheet that looks to fund one’s retirement if you have an RRSP, leveraged (i.e. partially funded through a HELOC) non-registered portfolio, TFSA, CPP and OAS. The optimal situation seems to depend on how much you have in each but the addition of the TFSA can be extremely helpful in keeping the tax man at bay.

  26. 27. Victorian

    Thanks FT,
    I have been investing in Mortgage Investment Corporations (MICs). I have RRSP & Cash investments. Starting in Jan 2009 I am going to add a TFSA account through my MIC. In 2007 I made 10.5%. In 2008 I am averaging 9.5% annual return. There will be a $132.50 annual service fee for my RRSP account and I am assuming a similar fee for administering my TFSA account. If my spouse and I max out our contributions each year and with the Cost of Living increases in contributions, I expect to have $1 million in our combined TFSA in <23 years if my returns average 10% annually. That would give us $100,000/yr tax free income to live on for life. This makes my Government pension pale in comparison. I have been telling everyone who will listen about the new TFSA. This is the best gift the government has given to me since the $100,000 tax free capital gains exemption back in the 90s.

  27. 28. Sarlock

    Some careful maneuvering of my investments will be done once the TFSA is up, as certain types of investments will become more tax efficient located in different accounts:

    Canadian dividend-bearing stocks: I currently hold these outside any investment vehicle and will continue to do so. They enjoy a favourable tax structure and you lose this benefit if the dividends are earned within an RRSP and any tax benefit you may receive from RRSP withdrawl at a lower rate may be offset by the fact that you lost your dividend tax credit.

    Interest-bearing investments (GICs, bonds): These will be a great fit with my TFSA. Interest income is taxed at your full marginal rate and would enjoy tax free growth inside a TFSA. I currently house these inside my RRSP and will begin to lessen the weighting of them in my RRSP portfolio.

    High-growth/risk stocks (mining stocks, juniors, etc): I mostly hold these outside any investment vehicle as well. Capital gains are taxed at only 50% and you can carry forward/offset capital losses against any gains. Again, in an RRSP (and TFSA), you lose this advantage.

    Foreign stocks: RRSP is a great place for these. Foreign dividend income does not enjoy the dividend tax credit, so you do not lose any tax advantage having these inside your RRSP.

    That’s how I have it planned so far. I’ll undoubtedly tweak the model a bit more before the end of the year.

  28. 29. David P

    I work for TELUS, and I own a bunch of shares. As soon as the TFSA is available, I am going to transfer $5000 worth of shares into the account. Will the dividends I receive be treated like interest (and grow tax-free)? Or will these dividend payments count as new contributions to the account (thus putting me over the $5000 limit for 2009)? Thanks!

  29. 30. Sarlock

    They will not affect your contribution; what you earn (interest, capital gains, dividends, etc) on your $5,000 is yours to keep and accrues tax-free.

  30. This could be a great option for my emergency fund and I have already started with ING Direct.
    I plan to stay on interests for few years until the account grows enough to be transferred to discount brokerage account.

  31. 32. Clayton

    David, as “Sarlock” has mentioned earlier, you would be wisest to hold dividend earnings stocks outside of TFSA’a and RRSP accounts as you loose the dividend tax credit inside these accounts. Unless you expect significant capital gains, but also be weary that capital losses which occur inside these account are lost. Personally I believe that the best investment to hold in a TFSA would be something like a REIT or a REIT ETF (XRE). This will shield your capital gains wilst limiting downward capital exposure, and the distributions you receive will not be taxed at the corporate level. Best of luck everyone.

  32. 33. Hussein

    Does anyone know if the TFSAs will have a Canadian content minimum the way RRSPs do?

  33. 34. Traciatim

    I didn’t think the RRSPs had a Canadian content limitation anymore, so I’m assuming no.

  34. 35. Hussein

    doubly good news (I’ve been out of the country for a while so missed out on that important info). thanks!

  35. 36. Father of Five

    Anyone looked at whether you can borrow money, invest in TFSA, and claim interest, whilst still not being taxed on the income? Normally in order to deduct interest you need to be able to earn income, and preferably in the eyes of CRA, you would earn income in excess of the interest expense. Sounds like you “earn income” in the TFSA, just that the income is not taxable, or is taxable at an effective rate of $Nil. I haven’t looked into this, but I will.

  36. 37. Traciatim

    Father of Five, you can not claim interest on funds borrowed to invest in a TFSA. You can however use the TFSA as collateral for a loan, so you could put 5 grand in the TSFA, and use that to secure a loan outside your TFSA if you can find someone willing to lend you money under this circumstance.

  37. 38. D-man

    From Canada Revenue Site – when you borrow money to invest and invest in the TFSA the interest will not be tax deductable. It would be great if we could though!!!

  38. 39. mymymy

    which tfsa pays the best interest rate?

    its hard to find that info right now, gotta squint real hard to find any mention of interest on any banks site… even if its tax-free, inflation eats away at the amount saved, and if you dont save any money, whats the point???

  39. 40. RAY FORTIER

    The only Institution offerring early info and account access to the new TFSA is ING Bank. Only problem is it is for a temporary rate of 2.7%. The perk is that for OCT, Nov., and Dec., eary deposits will earn 5.4% until Jan1/09. This is to get the early money and pay the interest on early deposits until the end of Dec.

  40. 41. stuart

    #

    22. Sam Li

    There is another player in town ICICI bank http://www.icicibank.ca

    Oct 29th, 2008 @ 4:46 pm

    where i dont see it on thier website

  41. 42. GV

    From the great comments I am reading, I assume we are only allowed 1 TFSA per person… so no way to open up one per bank for example?

  42. 43. DS

    @mymymy – PC Financial is offering 3.75% if you maintain a balance over $1,000 in your TFSA:
    http://www.banking.pcfinancial.ca/a/products/TFSA.page?WT.mc_id=PCTFSA-001

  43. 44. Maklaren

    Also Tradefreedom, which is owned by Scotiabank is offering TFSA account with capabilty of trading stocks. http://www.tradefreedom.com/en/tfsa/
    They have excellent no-fee software trading platform.
    Nice addition to no-yearly fees TFSA for trading stocks(like questrade).

  44. 45. john

    PLS GIVE DETAILS ABOUT TRADEFREEDOM,
    I APPRECIATE THE COMMENTS ON QWESTRADE , AND THE TIPS
    WHICH STEERED ME AWAY.
    NOW WILL TF BE ANY BETTER??
    I AM RETIRED AND WOULD LIKE TO TRADE OPTIONS IN A TFSA
    ACCT, I AM CURRENTLY WITH CIBC WHO DONT HAVE A
    TFSA BROKERAGE ACCT. I TRADE NAKED PUTS AND DONT LIKE TO PAY TAX
    ON MY WINS.

  45. 46. DAvid

    John,
    Blogs are a form of knowledge transfer. Why don’t you investigate Tradefreedom and discover the value of their product and share it with those here?

    DAvid

  46. 47. L505

    Interesting that ICICI bank has no mention of TFSA (tax free) on their website.

    Also interesting that ICICI bank has reduced their high interest to 2.5 percent versus ING which is 2.7 percent, and Outlook financial which is 2.8 percent.

    Outlook financial appears also not to have TFSA available, but I am not sure.

  47. 48. Sampson

    Just found out some ‘bad’ news regarding the RBC TFSA. Like RRSP accounts, no US cash can be held, so the 2.5% currency conversion slap in the face will occur.

    When will someone other than Questrade offer holding US cash within registered accounts? Doesn’t seem too complicated to me.

  48. 49. Mark

    @Sampson: Thanks for the news.

    I think I’m going to open a TD Discount Brokerage TFSA.

    I have my $5,000 contribution “used up” this year already, in my PC Financial TFSA, but later this year, I think I’m gonna transfer that money to the TD TFSA, and buy some funds, bonds, etc. in the process. The prices are too low this year not to.

    After reading these posts, it sounds best to hold all CDN dividend-paying stocks outside any TFSA or RRSP. This is probably the right for the long-haul since CDN dividend-paying stocks enjoy a favourable tax break/tax credit. This way, I won’t get “hit” at my marginal tax rate in my retirement.

    Mark

  49. 50. Sampson

    Mark: I think that is a good generalization, however you really need to calculate the real tax you will be paying and compare alternative methods.

    I was originally planning on moving my non-registered US stocks (decent dividend payers) into my TFSA – my RRSP is full of almost nothing but US dividend payers. However, when I finally did a calculation, it turns out that at my tax rate it makes more sense to put high yielding holdings (income trusts) even though they benefit from the dividend tax credit. Under my situation, the magic yield is around 10% vs. 5% (US dividends). At or above yields of 10%, I pay more tax on the same dividend from $5000 (TFSA limit).

    I agree that the TFSA will be a very useful retirement tool for many.

  50. 51. Konstantin

    Sampson,

    Only eligible dividends from (usually big) corporations are subject to the enhanced dividends tax credit.

    The income trusts’ distributions are not.
    They are taxed mostly like interest income (highest marginal rate).

    In this sense, you are right – they should be placed inside TFSA.

    You are not missing out on any favourable tax treatment.

    KK

  51. 52. Mark

    @Sampson and Konstantin:

    My RRSPs are not maxed-out yet. Not quite as lucky as you Sampson!!

    I’ve been contributing to RRSPs for ~10 years, but I still have about $20,000 worth of contribution room. Hopefully over the next few years, I can get that contribution room down. The only reason I continue to contribute to RRSPs (index funds), is because I need to off-set my income. Hopefully I can keep my job (in this economy) and continue that trend to build a nest egg of >$250,000 K for retirement. It’s a great bet that my retirement income won’t be as high as it is now, so the RRSP plan works for me, I will be at a lower marginal tax rate.

    That said, I need to start finding the money this year to begin my CDN dividend paying journey. Start getting into DRIPs. That will be another income stream in retirement. No DRIPs in TFSA, simply reinvest everything for many years to come.

    I see this new TFSA as a vehicle to buy some funds or bonds and let those grow into another egg (third stream; tax-free :)

    This new TFSA has lots of potential long term!

  52. 53. Sampson

    Mark, we are all dealt different cards in life, and I do feel very fortunate for what my wife and I have. It certainly sounds like you are well on your way down the right track. Just be patient and vigilant with your plan.

    Your plan for the TFSA sounds like a great start. For the time being, put what you can in there, set it and forget it. It can also double as your emergency fund for the time being and should make a wonderful co-retirement savings vehicle when combined with your RRSPs.

  53. 54. Joe

    Any one considering borrowing money from your HELOC and invest it using TFSA trading accounts?
    Although the loan interest for investing thru registered accounts is not deductible, but it has no tax implications for dividend and capital gains. Whereas if investing in a investment account, a large portfolio will build up and the how to melt down it after the mortgage is full paid is big headache.
    The 10k room for a couple is not small for medium income family after maximizing out your RRSP and RESP contribution.
    I think the fully implemented Smith Manoeuvre is just good for people with income over 10k at least.

  54. 55. cannon_fodder

    Joe,

    If you have a registered plan (e.g. RRSP), you could use that to “meltdown” the HELOC while not touching your investment account.

    If you borrow from your HELOC to invest in a TFSA, then why not invest it in an RRSP instead where you likely have a greater amount that can be invested? Or was this asked from a hypothetical question where the RRSP’s have been maxed?

    If you borrow from your HELOC to invest in a non-registered account, you would not only be able to deduct the interest if it was the appropriate investment, but you could also claim a capital loss should that arise. If the investment was a high interest bearing investment, then it would make sense to use the TFSA rather than a non-registered plan.

  55. 56. Grant

    I read that if you withdraw from your TFSA account, you will have to wait until the following year to be able to re-contribute, is that true? So if I, let’s say, open a TFSA savings account with ING with the max value of 5K, will I be able to withdraw and move it to ICICI in the middle of 2009? But if I withdraw my TFSA fund from ING, would I have to wait until next year before I can deposite it into my new ICICI TFSA account? I’m clueless…

    Thanks for any explanation for this ignorant person…

  56. 57. DAvid

    Grant asks: “I read that if you withdraw from your TFSA account, you will have to wait until the following year to be able to re-contribute, is that true?

    Yes

    “So if I, let’s say, open a TFSA savings account with ING with the max value of 5K, will I be able to withdraw and move it to ICICI in the middle of 2009?”

    You can TRANSFER it to ICICI, likely for a fee. If you withdraw it and open a second TFSA, you would pay a 1%? penalty on a $5000 over contribution. It would be seen as having two TFSA open with $5000 in each. Interestingly, the transfer fee is often equal to (you guessed it) 1% of the max contribution.

    “But if I withdraw my TFSA fund from ING, would I have to wait until next year before I can deposite it into my new ICICI TFSA account?”

    Yes. You could withdraw on December 31, and deposit on January 1, to minimize the uninvested time.

    DAvid

  57. 58. Dale

    Can capital losses on equities held in a TFSA appliable against capital gains held out side the TFSA?

    Thanks a lot,
    Dale

  58. Dale,

    To my knowledge, you cannot claim capital losses which come from a TFSA.

  59. 60. Alex.

    Hi all.

    As I knew and read here the gain made in a TFSA is tax free. But now my question: Will you have to report the potential income to the CRA even if you don’t have to tax them?

    Or do we just keep the TFSA unmentioned?

  60. 61. Martin

    Alex,

    I am not sure but I think that TFSA works the same as RRSP. You just have to tell them how much you put in the TFSA and how much you have taken out. The rest, you don’t have to tell them about that.

    But I am not sure.

  61. 62. Binh Levu

    Yes TFSA is good,but is there a string to catch TFSA holder?Like when you withdraw your money from this acct. bank will take your service fee,and other you couldn’t tell call”Hidden fee”??? That is the thing I’m worry about TFSA.
    “Nothing for free” Right?

  62. 63. Traciatim

    Binh Levu, the TFSA rules themselves don’t dictate fees, it’s the individual plan provider that determines this. Be sure to real all the fine print before you sign. Pick plans with no withdrawal fees, if everyone does this then that’s what products will be offered by other providers.

  63. 64. AK

    Having read the above comments, don’t you think Claymore’s Global Monthly Advantaged Dividend ETF make a lot of sense in a TFSA?

  64. 65. Smac20

    Now that the TFSA is here it is time to determine what the best investments are. I believe the TFSA should be used for somthing that pays a high dividend, is tax inefficient, and has relatively low volatility. This means income trusts.

  65. 66. Smac20

    One more question, is it better to leave your TFSA to a beneficiary or to your estate? What are the implications?

  66. 67. Big J

    I have stock options with the company I work for that are currently ‘in the money’. Can I buy a few in my TFSA, once there, sell them and then repeat to avoid capital gains tax? Basically “flipping” the shares in a tax free way.

  67. 68. cannon_fodder

    Big J,

    If you can transfer the options into your TFSA (i.e. they qualify as acceptable investments that can be held in a TFSA) then you should be able to do what you say.

    I just don’t know how you can transfer them into a TFSA. Only once was I ever offered stock options in a company I worked for. They never moved into the money but if I remember correctly, they were held by a US brokerage. I was thinking that I would simply exercise them at the brokerage rather than transfer them.

    Let us know what you find out.

  68. 69. ruchir

    I don’t understand why no one is talking about investing in deep value stocks in your TFSA accounts and hold those investments for perpetuity. I definitely see this as a way to get a lot wealthier. I am always amazed when people talk about GICs and TFSA together. It just makes no sense. If you are making 2% on your GIC, the tax savings would be merely $100 X marginal rate 45% (let’s assume) = $45. Why on earth would you want to invest in GICs for $45? Is it worth the pain? On the other hand investing in deep value stocks for long-term would mostly likely be extremely beneficial (100% tax-free) under TFSA.

  69. 70. Mark

    Forgive me if this has already been asked:

    If you are doing the smith manouvre, would it not make the most sense to use your HELOC to maximise your TFSA? For example, questrades tax free “trading” account. This way the portfolio you end up with at the end of your smith manouvre mortgage (which is hopefully larger than your HELOC) can be withdrawn tax free to repay the HELOC and have a nice tax free chunk of change to keep investing with.

  70. 71. Traciatim

    Mark, interest on funds borrowed to invest in a TFSA is not tax deductible; the TFSA ruins the manouvre.

  71. 72. Konstantin

    Ruin is an overstatement.

    More like you cannot double-dip – having tax-free income/cap gains AND having tax-deductible interest.

    You need to choose one ;)

  72. 73. Mark

    Ok, gotcha, that does make sense, too bad though. So how does it work when you are doing your taxes, in order to deduct the interest, do you only have to show that you have deposited the amount from the loan in a trading account? For arguments sake, say my starting HELOC is 50,000, but throughout the year I have 40,000 in cash and only ever use 10,000 to buy stock. Is the interest on the full 50,000 deductible or only 10,000?

    TIA

  73. 74. Mark

    I appologize, that question is probably better suited for the smith manouver page.

  74. 75. Mark

    Here’s a question more appropriate for this area:

    I’m sure that other people have thought of this and it is illegal in some way, under the GAAR probably? Anyway… TFSA’s have an over contribution charge of 1% per month I believe.
    Scenario: It’s December 1st, option expiry is December 16th, there is a stock at $20, with call options going for 1.00 at the 20 dollar strike. You deposit 50,000 in your TFSA, buy 2500 shares, sell covered calls to get 2500 dollars. The next trading day after expiry, you withdraw the 50,000 (assuming the stock hasnt moved lower, humor me) plus the 2500 in premiums.

    The result is:
    a. You walk away with 2500 dollars?
    b. You walk away with 2500 dollars less 500 dollars for the 1% overcontribution charge?
    c. You walk to court because the CRA is after you?

  75. 76. Mark

    Nevermind, apparently these types of “abuses” were rectified in new amendments last year. I bet there are some people out there who made a killing doing this before the new rules.

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