Tax Free Savings Accounts for Canadians

Jan 07

It’s January 2009.¬† And, do you know where your money is?¬† I’m guessing it’s not in your wallet, and worse, it may not even be in your savings account.¬† In fact, if you’re like the average Canadian, your money is tied up in paying off debt and you owe $9,000 on a line of credit and $2,400 on credit cards.¬† If we’ve learned anything over the past two decades, it is – spend now, pay later.¬†

In 1984, household debt (including mortgage and credit cards) equalled 71 cents of every dollar of income.¬† Fast forward to today and the debt has increased to $1.27 for each dollar of income.¬† The average Canadian today saves about 3% of their earnings (versus 20% in 1982.)¬† It’s no wonder new debt gets shovelled onto old debt.¬† With no savings to cushion unexpected expenditures (anything from car repairs to your pre-teen kid’s braces) the only option is to use a line of credit or charge it – and pray that somehow you’ll be able to pay it off… one day.¬†

TFSAs allow you to withdraw your money anytime with no penalty

The Canadian government is now offering an incentive to rebuild the savings that were lost over the past three decades with the new Tax Free Savings Account or TFSA (pronounced tifsa).¬† According to National Post Wealthy Boomer columnist, Jonathan Chevreau, TFSA’s “were the biggest innovation and tax break since the registered retirement savings plan (RRSP) was introduced a half-century ago.”¬† And if you haven’t heard about it yet (it’s been written about in every newspaper), you probably also don’t know that you should stop buying $5 lattes at Starbucks and settle for a home brewed cup of java.¬†

As of now, January 2009, Canadians can open a TFSA and start earning money, tax free.

The plan is similar to a Registered Retirement Savings Plan (RRSP), so if you understand how they work, the TFSA is even simpler.  Here are the major features:

  • You must be at least 18 years old to own a TFSA.
  • You may invest in anything, such as a savings account, bonds, stocks, mutual funds, GIC’s.¬† Like RRSPs.
  • All dollars earned – either through interest or capital gains – are not taxed when withdrawn.¬† Unlike RRSPs (a tax-break is given when you contribute, then you are taxed on withdrawal.)
  • The contribution limit is $5000 per year, regardless of your income.¬† Unlike RRSPs (contribution room is based on income.)
  • If you do not contribute the full $5000 one year, the remaining amount is carried forward every year for the rest of your life.¬† So, if you put $4000 into a TFSA in 2009, you can put in an extra $1000 in 2010, or whatever year you have that extra thousand dollars to save.¬† Unlike RRSPs (there is an age limit to contributing.)
  • You can withdraw your money anytime you want with no penalty.¬† Need to purchase snow tires one particularly blustery winter?¬† Have to pay for your son’s speech therapy?¬† No problem.¬† Just dip into your TFSA and withdraw your necessary funds.¬† Unlike RRSPs.
    • The amount withdrawn is added to your contribution room the next year, so you can replenish that tire money later, in addition to your annual $5000 limit.
  • If you are in a single earner family because one spouse is at home with the kids, any income earned in a TFSA by the stay-at-home parent is not attributed back to the working spouse.

It’s so simple.¬† For families, the main benefits of a TFSA appear to be the steady availability of funds (versus RESPs and RRSPs), the income splitting opportunity, and the tax-free earnings to help save for big purchases (think house, car, private schooling.)¬† For more detailed and professional guidance on how to make the most of TFSA’s, you can buy a book written by Gordon Pape called (surprise!) Tax Free Savings Accounts.¬†

Now – how to cut back on your spending and actually acquire enough money to put in a TFSA?¬† You’ll have to figure that one out by yourself.

Financial Post has a number of online interviews with author Gordon Pape to further illuminate Canadians on the qualities of the TFSA.

Sources: National Post New TFSAs change a guru’s game plan by Jonathan Chevreau, MoneySense December/January 2009 issue

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Marketing Apples to Children? Don’t Hold Your Breath

Aug 21

Too many Canadian kids are fat.  This is a fact.  Over the past few years, newspapers and health advocates have decried the rising obesity rates, but it’s not headline news today.  As Canadians have come to accept this weighty truth and various organizations and governments scramble to find solutions, it’s hardly surprising that finger pointing has begun.  Who is to blame for this epidemic of chunkiness?  The list of culprits is exhausting and their culpability impossible to define – from the nutritionists in Michael Pollan’s bestseller In Defense of Food (Fat bad!  Carbohydrates good!) to parenting experts that bemoan Mommy’s use of the word “no” – the blame game will very likely find few winners.  A recent report by the U.S. Federal Trade Commission, however, shows both the food and media industries are strong contenders.

 

According to the report, $1.6 billion was spent in 2006 by 44 major food and beverage marketers to promote their goodies to kids aged 2 to 17 years old.  For children aged 2 to 11 years, a total of $229 million was invested in breakfast cereals alone – while the amount spent on fruits and vegetables was $8.4 million.  Is it any wonder then, that kids are especially vocal about their preferences in the cereal aisle of the grocery store?  Take a teen to the local Loblaws, and it’s more likely to be the soda shelves that invigorate his taste buds.  That’s because the marketing strategy shifts toward carbonated beverages for 12 to 17 year olds where $472.2 million was invested in making sure your kid begs for Red Bull rather than V-8.  In that same age category, fruits and vegetables received a measly $6.2 million to promote their not so hip qualities.

 

The report also chastises the media for bombarding children and teens with messages and images that promote unhealthy eating habits through television advertising, the internet, and movie tie-ins.  In the reported year, food and beverage products were tied to about 80 movies, television shows, and animated characters that appeal to children.  It specifically cites the use of characters from Superman Returns and Pirates of the Caribbean to sell fatty food products.  According to a National Post article by John Hiscock, Dr. Martin Schiff, weight-loss expert and best-selling author of The Thin Connection, goes a step further in blaming Hollywood for North America’s gluttonous habits.  He is now part of a health campaign that urges the movie industry to add a new rating – “O” for Obesity.  According to Schiff, shows such as Sex in the City where skinny, beautiful women constantly eat yet never gain weight are setting an unhealthy example for thousands of children (as opposed to the promiscuous sex and shallow lifestyles?)  While this proposal is a noble effort to curb the overeating that has gripped our youngest generation, it’s not likely that an industry that profits from gratuitous violence and lurid sex scenes is going to omit all-you-can-eat buffet scenes from their movies.  Furthermore, parents busy censoring their children from lewd language, nudity and blood spilling are not about to whisper “cover your eyes” when some chubby kid eats a twinkie on the silver screen. 

 

A battle against America’s corporations to focus their energies less on junk food and more on healthy eating is, quite frankly, fruitless.  Although the report concedes that some of the largest food and beverage companies have taken “important steps to encourage better nutrition and fitness among the nation’s children” by limiting their advertising to foods that meet certain nutritional standards, if the “standards” are met by injecting a few vitamins into a sugar-laden gummy, children and parents are not much better off.   Maybe advertisers will bear some of the responsibility for North America’s unhealthy eating habits, and maybe they won’t.  Only time will tell.  But one thing is certain, all this finger wagging and strongly worded criticisms will do little to shrink the enlarged girth of a ten-year-old.  Regular trips to the farmer’s market, less time in front of the television, and a firm and well-practiced “No” will shed pounds and transform bad eating habits long before anyone sees an ad touting the funky pink treat that dances in your mouth and spreads cool antioxidants to your finger tips called … Watermelon!

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