Your Interview

Is this a tax shelter?

Carson Hirner: Yes, in the context that any income or gains earned on investments within the account will be tax free.

How much, or little, will one need to earn in order to contribute to this savings account?

Carson Hirner: There is no income requirement, unlike an RRSP.

Who will set the interest rates for this account?

Carson Hirner: You will be able to purchase investments just like in an RRSP account. Interest rates on investments will depend on the issuer of the security.

The idea of a TFSA sounds almost too good to be true. Who would benifit most from a TFSA account and why?

Carson Hirner: Arguably, people in a high tax bracket will benefit most as their marginal tax rate is highest. But, every adult resident of Canada will have the ability to shelter the same amount of investments from tax, as the $5,000 per year contribution limit is not tied to income.

What is the maximum contribution per year and will there be any increases to the maximum contribution in the coming years?

Carson Hirner: $5,000 per year initially, indexed for inflation. Contribution increases will be "rounded to the nearest $500".

What are the content restrictions for this savings account? for example could I trade in futures or options, or sell a stock short? Or rather is this more like an RRSP in terms of restrictions, where I cannot buy options for example.

Thank you

Carson Hirner: Your investment choices will be the same choices as allowed in your RRSP.

Will there be a foreign content limit?

Carson Hirner: No.

Are these TFSA accounts offered through banks?

Will there be monthly fees for accounts?

Why are they waiting till 2009 to implement this program?

What is the interest rate for these accounts?

Carson Hirner: Yes, they will be offered through banks as of January 1, 2009.

Monthly fees? I don't know. I would guess an annual fee much like self-directed RRSP accounts.

They are waiting until 2009 likely to allow the government time to pass the legislation, develop compliance rules and procedures, create reporting forms, train staff, etc.

Financial institutions also need time to put together their marketing and training plans. It's only 10 months away, hold your horses!

What happens when you pull money out of the account? Then you claim the money? And when you contribute do you get a deduction like an RRSP?

Carson Hirner: There is neither a tax deduction on contribution, nor taxable income on withdrawal.

Do I understand that this savining plan is time limited to 5 years?

Carson Hirner: No. There are no time limits other than you must be at least 18 years old to open an account.

Do you choose your investments and risks with the TFSA (as you do with RRSP)?

If so, can you declare losses during tax season?

Carson Hirner: Yes.

No (just like an RRSP).

It seems to me, if I have a 5% mortgage and can make 8% in a TFSA, all my extra cash should go to the TFSA and I should avoid bi-weekly payments, double ups etc and put this money int othe TFSA?

Carson Hirner: Purely based on your example rates, I agree. But only on the first "extra" $5,000 you have in the year, of course. There are also other things to consider such as your risk tolerance, and your confidence in the financial markets.

Paying down your 5% mortgage is as low risk as it comes, whereas investing in a product that might earn you 8% will have a fair amount of risk associated.

Is it just a savings account or can it be a self-directed investment/trading account?

Carson Hirner: The latter.

Will it be possible to transfer In-Kind equity into one of these accounts?

Carson Hirner: This is likely, although a transfer will no doubt trigger a deemed sale. Therefore, accrued gains will be taxable at the time of transfer, and losses may be denied.

I have no debt/mortgage. If I have not maximized my RRSP contributions, is it better to do so before investing in a TFSA account?

Carson Hirner: Depends on your marginal tax rate, and your plans for the money. If the funds will be needed in the short term, or will represent your emergency fund, then the RRSP may not be suitable.

Can you transfer investments from your RRSP from one financial institution directly into a TFSA from the same or different institution without any tax liabilities?

Carson Hirner: No. This would be considered an RRSP withdrawal, and would therefore be taxable.

Can i turn my yearlly contribuition + interest from the TFSA,into an RRSP and claim a tax deduction?

Carson Hirner: Sure. But, that would require a transfer of funds from the TFSA into the RRSP account.

The maximum contribution to an RRSP is based upon a taxpayer's previous taxation year's "earned income". Will the TFSA carry a similar restriction? Or will contributions be permitted regardless of the source of income?

Carson Hirner: The $5,000 annual contribution limit is NOT dependent on source or amount of income.

TFSA 101 - can you tell what it is and how to setup a TFSA account.

Carson Hirner: As of Jan 1/09, every adult Canadian resident will be able to open a TFSA at any financial institution that offers RRSPs. You will be entitled to deposit up to $5,000 per year into this account.

Any earnings or capital gains earned on investments or deposits within the account will be tax free (not just tax deferred like an RRSP). Deposits into a TFSA will NOT be tax deductible, but any withdrawals will be tax free.

Amounts withdrawn can later be redeposited, i.e. withdrawals create additional contribution room in the next year.

I took early retirement and am drawing modest pensions but am now back to work. I have lots of room left in my rrsp. I am 61. Is there anything in this for me?

Carson Hirner: It depends. TFSAs are designed to be complementary to your RRSP. Straight from the Finance department: "The after-tax rates of return on TFSA and RRSP savings are equivalent when effective tax rates are the same at the time of contribution and withdrawal."

If your current marginal tax bracket is higher than you expect it to be in retirement (please lend me your crystal ball), then your after-tax rate of return would be higher for an RRSP investment. Another factor to consider is that the tax savings of a TFSA account are not limited to age 71, which is when you must start withdrawing (and paying tax on) money from your RRSPs.

My general advice is that while you are full-time employed, you should max out your RRSPs, and then take your tax refund and put it into a TFSA.

What is the meaning of $5000? Is it 5000 per person OR per family? Or 5000 per person per year or 5000 per family per year?

If it is per person, can both spouse have an account in their own individual names? or does it have to be combined?

Carson Hirner: It is $5,000 per adult per year. An individual can own any number of accounts, although your annual contribution limit is $5,000 total into all accounts (not each account). Spouses have their own account(s).

For children over and under 18, at school and working - As a parent, can I open a TFSA for each and deposit the money ?
Sam

Carson Hirner: No.
Each child 18 years or older must open their own account. You can of course gift them the $5,000 to make the deposit.

For your children under 18, you can make contributions to an RESP. The Federal government provides a Canada Savings Education Grant of 20% of the first $2,500 contribution per child per year into a Registered Education Savings Plan.