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October 19, 2018 | The Legacy

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

It’s been four and a half years now since F passed. The elfin deity, as he was fondly called in this space, perpetrated some very good and very bad stuff as Harper’s finance guy. Among the awful things (his boss made him do both) was a treasonous attack on income trusts, and bringing in 0/40 mortgages.

The first was a direct betrayal of a mob of crusty old Boomers who had stuffed their retirement plans with sweet-paying trusts, and lost oodles as a result. They will never forget. The second helped import the US housing mania into Canada, goosing personal debt, encouraging speculation and setting us on the path to million-dollar slanty semis. In time zero down payments and 40 year amortizations were repealed. The income trust bust remained.

But he did good, too. He helped us survive the GFC. And he listened to my bleatings to create a universal tax-free account like the one Americans had (Roth IRA) that would let people invest for the future regardless of what they earned (like the RRSP). So we got it. The TFSA.

Nine years later, this thing matters even more. The accumulated contribution limit is now $57,500, which means a couple can have $115,000 invested between them in accounts that grow free of tax and provide cash flow in retirement that’s not counted as income, and won’t reduce your government pogey. Unused contribution room is never lost, and you can take money out, creating more room.

And this is one hot tool, when used correctly.

Two 37-year-olds who have maxed their plans and continue to do so until age 65, with growth assets yielding 6% annually (not a hard stretch) will have just shy of $1 million by R-day. That should throw off more than $60,000 a year forever, preserving the capital and having zero impact on CPP or OAS. For the moisters, it’s even better. Consider a 20-year-old starting out now with a hundred bucks a week. By 65, that’s grows to $1.3 million with expected income of about $80,000. Add in Ottawa’s handouts, and it’s about $100K a year, without touching the nestegg. Yeah, a hundred grand may not be that rich in four decades, but it’s a helluva good start.

Anyway, you know all this. So let’s talk about the dark side.

Apparently we all die (who knew?) and tax-free accounts now form a key part of planning for the inevitable. Tens of billions will be flowing between account-holders and those they choose to receive the money. The rules favour spouses and common-law partners the most, but you can give your TFSA to anybody – at least what it contains. Only your partner can get the account itself.


It comes down to a simple choice. When setting up a TFSA you can choose a ‘beneficiary’ or a ‘successor holder.’ If you’re married or have a stable long-term relationship (other than with your border collie), always pick the SH option. By doing so, your partner will actually take over your TFSA, incorporating it into her/his own, retaining all of the assets and the tax-free growth status. So all income or growth earned after you croak remains untaxed.

Not so if you name a TFSA beneficiary.

In that case the money in your TFSA still passes on free of tax, but the income and growth from the date of your death until the distribution is taxable as income (ouch). Also the beneficiary would need sufficient contribution room in their own TFSA to incorporate this money into that account (if not your spouse), to continue enjoying tax-free returns. Successor holders, in contrast, don’t need to have this room available. They can just Hoover the existing assets into their plan.

If your spouse messed up and named you as a B instead of a SH, it may still be possible to roll the TFSA assets of the deceased into your own. This ‘exempt contribution’ must be done before the end of the year in which death came, and be registered with the CRA within 30 days.

Because they like to be complicated and different in Quebec, by the way, where it takes twice as many words to say something, a valid will is required to pass on a TFSA. Unlike everywhere else, TFSA assets cannot bypass the estate process or be transferred directly to a beneficiary. So while everywhere else this can be dealt when a TFSA is opened, in that province only a will can determine who gets it.

Is this a big deal? Nah. It’s just a couple of words. You can find out with a phone call or email if you made the right choice. So, do it. Remember what happened to little F. Nobody gets out of here alive.

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October 19th, 2018

Posted In: The Greater Fool

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