Self Directed Investing | Financial Crooks

Starting in 2009, Canadians had a new investment mechanism to tinker with called Tax Free Savings Accounts . Since 2008, Gordon Pape has been trying to educate Canadians about the varied and intriguing opportunities these accounts offer through his books. His How TFSAs Can Make You Rich is his third book on the topic. I’ve read each of them and from each I’ve learned a bit more. Here’s my review and a few TFSA tips from Mr. Pape.

What’s Good About How TFSAs Can Make You Rich

This is a great book for reading in short bursts while waiting for hockey practice to end, while riding the train to work, or during that glorious 15-minutes a week that you get to do what *you* want.

It’s divided into compact chapters with clear titles so you can skip ahead if that’s what you want or need.

It also includes a chapter of real questions from readers with their answers. For those of us who like reading Financial Facelifts and Portfolio Makeovers, these tantalizing glimpses into the finances and devious minds of others have a special appeal.

Gordon Pape knows that many of us have questions like “should I save for my first home in my TFSA or my RRSP?” He tries to answer them in this book. For questions that have no one “correct” answer, he points out factors to consider.

TFSA Tips from How TFSAs Can Make You Rich

Here are a few facts I found interesting and worth noting in the book.

TFSAs can be used as collateral for loans provided the financial institution is willing. For example, if your TFSA money is locked up in 5-year term GICs (Please see: Can I Cash my GIC Whenever I Want?) the bank that issued the GICs might allow you to use those certificates as collateral for a short-term loan.

In provinces and the territories where a person cannot legally open a TFSA until they turn 19 years of age, the contribution room still begins accumulating at 18. So at 19, the person can contribute $(5000+5500) = $10,500 or $11,000 in the first year if they turn 19 in 2013 or 2014. (Please click to check your maximum TFSA contribution limit if you’ve never made a contribution. )

TFSAs are a “cheap and simple tax shelter” for Canadians over 71. When the youngest spouse in a relationship reaches 71, neither of the couple can contribute to a RRSP or a spousal RRSP any longer. Based on a CRA schedule, they will have to start taking money out of their RRIF (if they set one up) and pay taxes on it. If they don’t need to spend the money they withdraw, after paying the tax, they can invest the balance in their TFSA if they have contribution room available. The new investment growth of that money will not be taxed.

If you have a spouse (married or common law), that person should be designated as the Successor Holder to your TFSA, not as the Beneficiary. This will ensure that probate fees are not payable on the TFSA holdings if you die; It also allows your spouse to simply keep and use your TFSA as if it were his or her own. (A Beneficiary has to withdraw the assets from a TFSA. They don’t pay any tax on the investment earnings in the TFSA prior to the person’s death, but they do have to pay taxes on anything the investments earn after the person’s death. [Please see Get Ready to Die: Beneficiary and Successor Account Holder Forms for your Online Brokerage Accounts for more info on Successor Holders and Beneficiaries.]

Here’s Other Questions Answered in TFSAs Can Make You Rich

If you borrow money to invest in a TFSA can you claim the interest on the loan as a tax deduction?
Can you “sell” or “rent” your TFSA room to someone with more money than you so they can invest tax-free until you need the space?

If you want to know the answers or want a great explanation of how TFSAs work and how you can make them work for you, buy the book! (Or look for it at your public library.)

Related Reading

Maximize your TFSA First

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Did you read this, or Gordon Pape’s earlier books, on TFSA investing? Please share your opinions with a comment.

Newspapers, bank ads, and even financial websites are often a bit careless when telling people how much they can contribute to their TFSA. They all seem to assume that everyone is 24 or older (in 2015.) What if it’s 2015 and you’re under 24? What if you are 24 or older, but you moved to Canada in 2012 to 2015? What if you left Canada between 2012 and 2015? How much can you contribute to your TFSA if you just turned 18 or if you immigrated to Canada after 2009?

The Age of Majority Is Not the Same Throughout Canada

For younger investors it’s important to clarify one rule about TFSAs. The age of majority varies in different provinces in Canada. Banks and financial institutions will not let you set up a TFSA until you reach the age of majority.

If you are a Canadian Resident, have a SIN number, and you live in

Alberta
Manitoba
Ontario
Prince Edward Island
Quebec, or
Saskatchewan

you can open and contribute to a TFSA once you turn 18 years of age.

If you live in

British Columbia
New Brunswick
Newfoundland and Labrador
Northwest Territories
Nova Scotia
Nunavut, or
the Yukon

you can’t open and contribute to a TFSA until you turn 19. Your TFSA contribution room starts accumulating once your turn 18 years of age, though. So you will lose one year of tax-sheltered growth of your investments, but otherwise you are not penalized. This is because in these provinces and territories you cannot legally enter into an agreement until you are 19 years of age.

So for people who have been Canadian Residents for each and every year since 2009, this table lets you lookup your TFSA contribution room, if
* you have never made any TFSA contributions before
* you are a Canadian Resident and have been one for each and every year since 2009
* you have a Social Insurance Number, SIN

Year You Were Born	Year You Make Your First Contribution to your TFSA	Maximum You Can Contribute that Year to Catch Up All Previous Years’ Contribution Room if you live in Alberta Manitoba Ontario Prince Edward Island Quebec Saskatchewan	Maximum You Can Contribute that Year to Catch Up All Previous Years’ Contribution Room if you live in British Columbia New Brunswick Newfoundland and Labrador Northwest Territories Nova Scotia Nunavut, or the Yukon
1991 or earlier	2009	5 000	0
1991 or earlier	2010	10 000	10 000
1991 or earlier	2011	15 000	15 000
1991 or earlier	2012	20 000	20 000
1991 or earlier	2013	25 500	25 500
1991 or earlier	2014	31 000	31 000
1991 or earlier	2015	36 500	36 500

1992	2009	0	0
1992	2010	5000	0
1992	2011	10 000	10 000
1992	2012	15 000	15 000
1992	2013	20 500	20 500
1992	2014	26 500	26 500
1992	2015	32 000	32 000

1993	2009	0	0
1993	2010	0	0
1993	2011	5000	0
1993	2012	10 000	10 000
1993	2013	15 500	15 500
1993	2014	21 000	21 000
1993	2015	26 500	26 500

1994	2009	0	0
1994	2010	0	0
1994	2011	0	0
1994	2012	5 000	0
1994	2013	10 500	10 500
1994	2014	16 000	16 000
1994	2015	21 500	21 500

1995	2009	0	0
1995	2010	0	0
1995	2011	0	0
1995	2012	0	0
1995	2013	5 500	0
1995	2014	11 000	11 000
1995	2015	16 500	16 500

1996	2009	0	0
1996	2010	0	0
1996	2011	0	0
1996	2012	0	0
1996	2013	0	0
1996	2014	5 500	0
1996	2015	11 000	11 000

1997	2009	0	0
1997	2010	0	0
1997	2011	0	0
1997	2012	0	0
1997	2013	0	0
1997	2014	0	0
1997	2015	5 500	0

NOTES:

Wait for Your Birthday

According to the Canada Revenue Agency website, you can only contribute to your TFSA on or after your 18 (or 19) birthday. So if your birthday is December 31, 1996, and the age of majority in your province is 18, you must wait till December 31, 2014 to make your first contribution. If the age of majority in your province or territory is 19, you must wait till December 31, 2015. You cannot make the contribution on any date before then.

What If You Contributed Something Already to Your TFSA?

This article is meant for people who have not invested in their TFSA at all yet. You can’t use the numbers in this article to get the information you need.

What If You Contributed Something Already to Your TFSA and Already Took Some Out?

This article is meant for people who have not invested in their TFSA at all yet. You can’t use the numbers in this article to get the information you need.

What If You Were Not a Canadian Resident for Each and Every Year from 2009-the Present?

If you were or are not a Canadian Resident for one or more years between 2009 and the present, you must not include the maximum TFSA contribution limit for that year or those years in your calculation of how much you can contribute.

For example, if you were 25 in 2009 and opened a TFSA and contributed the maximum of $5000, and then for 2010, 2011 and 2012, you were not a Canadian Resident, and in 2013 you became a Canadian Resident again, you can only contribute an additional $5500 to your TFSA in 2013. You cannot contribute the ($5000+5000+5000 =) $15,000 for the years that you were non-Resident. When you are non-Resident you do not earn contribution room and you do not get it back later.

Things Are a Bit More Complicated for People Becoming Canadian Residents or Leaving Canada Permanently

Tax laws would be simpler to understand if no one ever moved. In reality people immigrate to and emigrate from Canada every year. Here’s some information for new immigrants to Canada.

I Am a New Immigrant to Canada; As a New Canadian Resident What Is My TFSA Limit?

Only Canadian Residents earn an annual TFSA contribution amount. Each year, a Canadian Resident earns a bit more TFSA contribution room.

If you were not a Canadian Resident in a given year, even if you were 18 or older, you have not earned any TFSA room for that year.

So if a person who was born in 1991 or earlier moves to Canada and becomes a Canadian Resident

In 2009, he or she has the same limits as someone born in 1991 or earlier in Canada
In 2010, has the same limits as someone born in 1992 living in Alberta
In 2011, has the same limits as someone born in 1993 living in Alberta
In 2012, has the same limits as someone born in 1994 living in Alberta
In 2013, has the same limits as someone born in 1995 living in Alberta
In 2014, has the same limits as someone born in 1996 living in Alberta
In 2015, has the same limits as someone born in 1997 living in Alberta

According to the CRA website you earn TFSA contribution room in one-year chunks. Even if you arrive in Canada part way through a year, you will earn the room for the entire year, not just part of it. For example, if you became a Canadian resident in November 2013, you will still have $5500 in contribution room for 2013.

What If I am a Grad Student with a Temporary (R prefix) Social Insurance Number

Not everyone living in Canada is a Permanent Resident. Some are students attending university. Those students may be working and paying taxes. They will have a SIN that starts with the letter R.

According to The Canada Visa website some students are considered Residents of Canada although they are not Permanent Residents. They are eligible to open a TFSA. The CRA definitions for a Canadian Resident are online.

If a person needs further clarification on whether they are a Resident, more information is available. The CRA website says “For more information, see Interpretation Bulletin IT-221R, Determination of an individual’s Residence Status, or contact the international Tax Services Office at 1-855-284-5942. If you are calling from outside Canada and the United States, call 613-940-8495.”

What Is My TFSA Limit If I Was a Canadian Resident but Left, then Returned and Became a Resident Again?

If you leave Canada and are no longer a Canadian Resident (and the Canada Revenue Agency agrees you are no longer a resident) you do not have to cash out your TFSA. You cannot make any new contributions however.

According to Canadian Tax Resource, while non-Resident, a person will *not* get any new contribution room. Even if they move back and become a resident again later, they will not get back those lost years of contribution room.

Be aware, also, that if you make a withdrawal from your Canadian TFSA while a Resident of a country other than Canada, that other country may consider the money to be income taxable by that country.

According to the CRA website, if you make a withdrawal from your TFSA while a non-Resident of Canada the following year you will be given the room to re-contribute that withdrawal, but you can only put the money back in after you re-establish Canadian Resident status, not before.

If you plan to move out of Canada and take up residence elsewhere, I strongly suggest you plan how to handle your TFSA with a Canadian tax specialist who fully understands the rules both in Canada and in the country to which you are moving!

How Much Can Old Timer Canadians Contribute to our TFSAs?

If you turned 18 in 2009 or before, and if you have always been a Canadian, and if you have never made any contribution to a TFSA, and if the current year is 2013, you can contribute $25,500.

If you turned 18 in 2009 or before, and if you have always been a Canadian, and if you have never made any contribution to a TFSA, and if the current year is 2014, you can contribute $31,000.

If you turned 18 in 2009 or before, and if you have always been a Canadian, and if you have never made any contribution to a TFSA, and if the current year is 2015, you can contribute $36,500.

If You’re Still Unsure Contact the Canada Revenue Agency

The fines for over-contributing to your TFSA are high. If you’re still not sure what you can contribute, I’d strongly recommend you contact the CRA to discuss your personal limit.