[Canada] Canadian Politics Redux

[viper37]

FHSA only last 15 years tho and then the money gets transferred to a RRSP. It's not a long term investment vehicle.

It's really meant to buy a house, to serve as a down payment instead of taking money out of your RRSP and reimbursing it over 20 years (RAP in French).  It's a better tool, for those who can afford it.

Obviously, the timing must be done well.

[HVC]

In theory your RRSP is taxed at a lower rate when you retire because you're in a lower tax bracket. So you reduce your tax burden when you're working and get lower taxed income when you retire. That doesn't always work out, especially as life gets more expensive and people live longer.

[Jacob]

Eh? If things get more expensive, then presumably the same amount of money will be in a lower tax bracket the further in the future you get? Same with living longer - if you live longer, you'll need to stretch the same amount longer which will make your yearly payments (and those tax payments) lower?

[HVC]

More expensive means you need to draw more money, putting you in a higher tax bracket when you retire. Might not be the same as when you were working, but higher then you planned. Living longer I'll admit i am mistaken, as far as taxes go, but might mean you either run out of rrsp or live a poorer life then was intended.

[Jacob]

Fair enough on the first point - I suppose it depends on how (or whether) the tax brackets change as cost of living changes.

[Admiral Yi]

In theory your RRSP is taxed at a lower rate when you retire because you're in a lower tax bracket. So you reduce your tax burden when you're working and get lower taxed income when you retire. That doesn't always work out, especially as life gets more expensive and people live longer.

Plus your capital gains and dividends are not taxed.

Do youse guys have an equivalent to the Roth IRA, where it's taxed on the front end as income but not taxed when you withdraw it on the back end?

[HVC]

TFSA works like that. Qualified investments using TFSA don't incur tax either.

[Barrister]

If my government-run pension plan goes tits-up I'd be completely screwed.

It your government-run pension goes tits-up, you will have other problems to worry about by then...

Very true.  Which is why I haven't bothered to try and have BOTH a full government pension plan PLUS a well-funded RRSP.

I mean yes, then I'd be doubly protected.  But that would come at significant personal cost now, plus if my government plan goes tits-up there's a good chance the stock market does the same anyways.  And I don't need a double-pension when I hit retirement - what would I do with it at that point?


(Is "tits-up" an offensive phrase?)

[Barrister]

TFSA works like that. Qualified investments using TFSA don't incur tax either.

Yeah.  You put money into a TFSA (Tax-Free Savings Account) using after-tax money, but then any gain comes out tax-free.  There's a max annual limit.

[HVC]

I think it's 7k now? It's cumulative though, right? You can add in the current year any unused cap amount from previous years?

[crazy canuck]

My RRSPs will also be taxed when I retire. So I'm not gonna worry too much about a business owner being taxed on his million dollar business he sells when he retires.

People who earned all their income as employees will likely not be affected.  Those folks probably have all of their retirement savings in RRSPs, which will be converted to RIFFs.  Or, if really lucky had enough savings to also use TSFAs.

But we are talking about small business owners who probably didn't recieve much by way of salaries, and so did not have the same opportunity to amass much in the way of RRSPs, but built up the value of their businesses instead.  And they need not be "million dollar businesses".  The increase tax rate for corporations kicks in at dollar 0.  And if the small business owner had good tax and legal advice at the time, the owner should be owning the shares in their company in a holding company.  Why, because that is the why the government has been encouraging people to do it for the last 25 years or so. 

A lot of small business people are going to be hurt by this because the nest egg they thought they had built up is now worth a lot less to them after tax.

And remember this is not just about shares in a company, there a lot of properties throughout Canada that are about to change hands.  That will all be fully taxed in the hands of the beneficiaries after the 250k amount.  Which all properties in Canada.

[crazy canuck]

In theory your RRSP is taxed at a lower rate when you retire because you're in a lower tax bracket. So you reduce your tax burden when you're working and get lower taxed income when you retire. That doesn't always work out, especially as life gets more expensive and people live longer.

True, but there are mandatory amounts that must be withdrawn from the RRIF.

That brings me to another move the government made regarding their new definition of a bare trust.  My father in law must draw money from his RRIF.  My wife has power of attorney and manages all of his money and does all his banking.  The financial institution set up a joint account for the two of them to facilite her managing his finances, paying his bills etc.

Now guess what, it is now deemed a bare trust, and we get to the pay the taxes on the account at my marginal tax rate!!!!

[crazy canuck]

I need to read more about that.

they are raising the exemption threshold so that is good.
They are taxing more the sale of rentals and secondary homes, so that is good.

The rest, I'm not sure of what I'm reading.

This reminds me of the discussion in the UK thread.  The government has stated that they wish to create incentives for the creation of rental properties.  They cut the GST and increased amortization rates for those purposes.  Now taxing properties built for rental when sold seems to run contrary to the policy objective of getting people to invest in the creation of more rental properties.  Why would I do that when I am going to be hit with a larger capital gains tax?  And again, realize that this is mainly corporations doing the building and now the inclusion rate just went up for them on the very first dollar of capital gain.

[crazy canuck]

My RRSPs will also be taxed when I retire. So I'm not gonna worry too much about a business owner being taxed on his million dollar business he sells when he retires.

People who earned all their income as employees will likely not be affected.  Those folks probably have all of their retirement savings in RRSPs, which will be converted to RIFFs.  Or, if really lucky had enough savings to also use TSFAs.

But we are talking about small business owners who probably didn't recieve much by way of salaries, and so did not have the same opportunity to amass much in the way of RRSPs, but built up the value of their businesses instead.  And they need not be "million dollar businesses".  The increase tax rate for corporations kicks in at dollar 0.  And if the small business owner had good tax and legal advice at the time, the owner should be owning the shares in their company in a holding company.  Why, because that is the why the government has been encouraging people to do it for the last 25 years or so. 

A lot of small business people are going to be hurt by this because the nest egg they thought they had built up is now worth a lot less to them after tax.

And remember this is not just about shares in a company, there a lot of properties throughout Canada that are about to change hands.  That will all be fully taxed in the hands of the beneficiaries after the 250k amount.  Which all properties in Canada.

One other thought, it doesn't actually take much to own $1 million business. The butcher I have been going to for a number of years sold his business last year. He had a long-term lease in the premises and the value of that long-term lease was likely worth a couple of hundred thousand dollars.  Equipment, including his cold locker, is probably worth another hundred thousand dollars. The good wheel of the business, which is really what the purchaser was buying was also worth at least a few hundred thousand dollars.

He is middle class. 

The guy that bought the butcher shop is in his early 30s. He's got big plans for increasing the value of the business and he's going to pay the full tax, Assuming It is still in place by the time he sells the business.

He will also not be what you would consider wealthy.

[viper37]

If my government-run pension plan goes tits-up I'd be completely screwed.

It your government-run pension goes tits-up, you will have other problems to worry about by then...

Very true.  Which is why I haven't bothered to try and have BOTH a full government pension plan PLUS a well-funded RRSP.

I mean yes, then I'd be doubly protected.  But that would come at significant personal cost now, plus if my government plan goes tits-up there's a good chance the stock market does the same anyways.  And I don't need a double-pension when I hit retirement - what would I do with it at that point?


(Is "tits-up" an offensive phrase?)

BB, it's Languish.    You don't have to worry about being offensive

What I meant by my comment is that if your government pension plan goes belly up, it means the country will be in utter chaos by then.  It will be a matter of mere survival.  The Walking Dead, but in Alberta.    You will have other things to worry about than your pension plan.


If the pension plan is underfunded at some point, the government and the union negotiate a raise in contributions from both parties to maintain the rent and/or a reduction for the new retirees entering the job after the agreement (orphan clause).

This is not like a private company where it could go brankrupt and the pension fund would disappear (side note: did I dream, or did some government introduce a measure for these funds at some point to specifically avoid this ?)