TFSA ideas
November 14, 2008 – 4:54 pmSome more discussion on FWF.
Split income with your spouse. The attribution rules in Canadian tax law will generally prevent you from giving money to your spouse to have your spouse pay the tax on any income earned on those dollars. You can, however, give money to your spouse to contribute to his or her TFSA, with no concern about income in the TFSA being attributed back to you.
Shelter highly taxed income. Consider holding certain investments inside a TFSA to shelter what would otherwise be highly taxed income. I’m thinking of fixed-income investments that create interest income, certain options strategies or short-selling of securities, which can give rise to regular income, or securities paying foreign dividends, which are taxed as regular income and aren’t eligible for the dividend tax credit.
Help your adult children. If you’re looking to help your adult children with a major purchase (a home, for example), consider giving your child the money to contribute to his or her TFSA to allow the money to compound free of tax. Consider making this a loan to your child instead, with proper documentation, to protect the assets from a potential breakdown of your child’s marriage.
Minimize benefit clawbacks. By holding income-producing securities inside the TFSA rather than in your personal hands, income that may otherwise increase your net income and thereby reduce certain benefits (Old Age Security benefits, for example) may no longer cause a clawback of those benefits.
Draw down TFSA assets first. When you’re in retirement, consider drawing on your TFSA assets first to meet your everyday costs of living. This will allow your registered plan assets to grow a little longer before having to be withdrawn on a taxable basis.
Smooth impact of fluctuating income. If your income will fluctuate over time, you may want to set aside money in a TFSA today, and draw down on those savings later to make a contribution to your RRSP in the year you may need a tax deduction, or to contribute to a charity in that high-income year, which will create a donation tax credit to help reduce your tax bill.
Assist tax-loss selling. If you’re thinking of selling a security that has dropped in value in order to use the resulting capital loss, but you still like the future prospects of the investment, consider selling at a loss, then contributing the proceeds to your TFSA to the extent you have contribution room. Repurchase the investment inside the TFSA. If the investment rebounds as you think it will, those gains will be sheltered from tax inside the TFSA.
Shelter private company shares. It’s possible in some cases to hold private company shares inside a registered retirement savings plan, and likewise inside a TFSA. The rules are complex, but as a general guideline, the annuitant under the plan cannot be a “connected shareholder” immediately after the time the shares are acquired by the plan.
One Response to “TFSA ideas”
Here’s an article on TFSA in-kind transfers and swaps:
http://www.nationalpost.com/todays_paper/story.html?id=1213222
Re: In-kind transfers:
You should instead sell the stock while it’s still non-registered, transfer the cash into the TFSA, and then wait at least 30 days to avoid the superficial loss rules which otherwise would apply if you re-purchased the identical stock.
Re: Swaps:
Golombek has no problem with the swap strategy, but says the same thing can be accomplished without the swap. “Why not just sell stock inside the TFSA for $15,000? Now we have $15,000 cash inside the TFSA. If you still want to hold the stock, buy $15,000 worth for your non-registered account. It accomplishes the same thing.”
However, Skinder says the swap may be advantageous for less liquid securities, private companies, options or warrants.
By Patch on Jan 28, 2009