TFSA is a GIFT: All Benefits Explained + 3 Important TFSA Features DIVIDEND INVESTORS Should Know
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- เผยแพร่เมื่อ 26 ก.ค. 2024
- #dividends #TFSA #TaxFreeSavingsAccount #canada #passiveincome #investing
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Benefit #1:
The contribution room, or the amount of money which you're allowed to deposit in this account does not have to be earned and is the same for all Canadians
Unlike the RRSP account where you need to EARN your contribution room with the taxable salary income you make, with the TFSA, you get it automatically no matter what. All you need to do is be Canadian, that's it.
The contribution limit increases every year since 2009, the year this account was invented...and the exact amount is determined every year by the Government.
Also, any unused contribution room is carried over to the following year. So don;t worry about losing your contribution space
So if you turned 18 in 2009 or before 2009, you're entitled to the maximum amount of 75,500$ as of January 1st 2021
If you turned 18 after 2009, well you can simply use an online tool to figure out your overall contribution limit during any given year. I will add a link to a very simple and easy online tool in the video description below.
Benefit #2:
All the Income generated from all your investments, whether is Interest income, Dividend income, Capital Gains, Capital Appreciation. WTV it is.. is all TAX FREE.
It's tax free as it grows in the account and it's tax free when you withdraw it from your account.
If you got super lucky and bought TESLA or SHOPIFY or NETFLIX and made a capital gain of 100k or 2 million dollars, it's all tax free.
So YES that is why the TFSA is such a precious gift. Now one quick note to mention about Dividends so that I'm 100% correct here. Any U.S. Dividends from U.S. Listed stocks like Apple or Microsoft will still be subject to a 15% Withholding tax. There is nothing you can do to get away from it, as it’s taken right off the top before the dividend hits your account, so don’t worry about actually paying the tax to the IRS yourself it’s done automatically. Again, this ONLY applies to U.S. Dividends, from U.S. Listed stocks, not Canadian Listed Stocks.
Capital Gains however, is tax free even if you make millions of dollars and even if it's a U.S. listed stock.
Benefit #3:
You can withdraw money whenever you want, it will always be TAX-FREE
So unlike the RRSP where you cannot withdraw money early, well you can but you will need to pay all kinds of fees, penalties and taxes...with the TFSA it’s just the opposite. You can withdraw whenever you want, it doesn't matter. So you have full withdrawal flexibility so to speak with the TFSA
This is the main advantage that the TFSA has over the RRSP
Now if you're already investing on your own, you probably already knew all this... but now I will share 3 important features investors need to fully understand.
#1
Any $ you Withdraw from the TFSA increases your contribution room dollar for dollar the FOLLOWING year
That's right, you can increase your contribution room yourself when you withdraw money from the account. Only thing is, that you need to wait the following year starting on January 1st, for it to take effect. And this is ON TOP of the new Government Limit for that year.
So if you withdraw 6k from your TFSA in a given year and the new annual limit is 6k, lik it is for 2021, you will have 12k of TFSA room instead of only 6k
This is important to know for us Dividend Investors because our primary income comes from Dividends. Now of course you can just leave the dividend money there and reinvest it or simply turn on the DRIP but for Value oriented investors like myself where I like to decide what to reinvest in and when, it's a good feature to understand
#2
You can maximize TAX savings by strategically choosing which investments you put in your TFSA
This is especially important if you're planning on maxing out your TFSA, which should be a common goal for all Canadians, if you ask me.
Now I won’t get into the details on all the tax implications for the different types of stocks, i'll cover that in an upcoming video on TAXES
#3
You can contribute to your TFSA by transferring Stocks from your Cash account. This is called an “IN KIND” contribution.
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Thanks for all the Information..
Nice video. The name TFSA is a total misnomer. It should be called the Tax Free Investing Account (TFIA). I speak to people all the time who have no clue it can be used for investing.
That makes me 😢
1.19 - not only a Canadian Citizen. Canadian resident, includes permanent residents, people on work permits, student permits etc.
Was about to say this!
Thank you! This info should be mandatory in grade 7 . As a child comes into maturity and learns how money can make money. And before they are debt straped the way our society teaches.
Agree !
Much Love Brother 😍
what is classified as a trader? or how can your tfsa get flagged? is there a number or is it based on trades per day or something
I just wanted to say this is a great channel. 👍
Thank you so much 😀
I absolutely love your channel!! You have helped me so much as a new investor in Canada! Thank you so much for all you and your wife do! 🙏🏽🙏🏽
Glad to help out ! Thanks 🙏
You inspire people like me, thank you!
Very useful information. Thank you.
Glad it was helpful!
How CRA see the frequent trading pattern, such as rebalancing the stock position every month？
Why not just buy more rather than contribute shares with losses? Assuming you have the cash on hand.
Another video? We're getting spoiled. Thanks 😌
More to come!
Watched and liked thanks!
Thank you too!
Excellent!
Great video, thanks Adrian!!!
I can't seem to find answer anywhere, he often a person can trade. What considers "frequent" trading. There is no exact number there. If i buy a stock and then sell it after 3 to 4 weeks and then rebuy the same stock ( at a dip) or buy other stocks, would that be acceptable to CRA? Would the flags go up? I understand day trading is not allowed, but what if a person strategically trading stocks to make their portfolio bigger ? Thanks
I think that’s fine , it’s frequent trading that will raise flags . I found some articles online about it but I think that if you want to be 100% sure , you will either have to contact an accountant or the government itself
The annoying thing about transferring stocks to a TFSA, is if your trading platform is something like WealthSimple Trade, unless you have the cash readily available to deposit in your TFSA account, the transfer process takes about 1 week. When I transferred a US stock from my personal account to my newly opened RRSP, I had to first sell the stocks in my trading account; wait 3 days for the transaction to be settled with WealthSimple; transfer the cash to my RRSP and wait 3 more days for the transfer to settle even though both accounts are with WealthSimple; then finally purchase back my stocks... which in my case had gone up during that week. It’s a risk, but if the price goes down you may benefit from being able to buy more shares than you sold.
What about a cad bank that is dual listed. RY.TO and RY.NYSE? If bought from NTSE will there be the IRS withholding tax of 15%.?
I think so .. not 100% sure
Thank you for the quality content. :)
Thank you
You're welcome
Is there a withholding tax in the TFSA on US reits paying dividends? There is right
Watch my tax videos
Im new to investing and I was wondering what kind of stocks to generate income should I have in my tfsa and what kind should I have in my rrsp account? Thanks!
Is putting the same ETF in both accounts a bad idea?
I don’t see why
So dividends withdrawn from the TFSA are not taxed?
Nope! I withdraw mine every month. Anything you withdraw from the tfsa is tax free ... not only dividends
Do the withdrawals of div% monthly still allow you to contribute to unused contribution room? Eg. 10k removed in 2021. If no drip is on and div% is rolled into a bank acct, does it count on top of the 10k removed?
Not sure I understand the question . Whatever you withdraw from the tfsa can be put In the following year
Ok, so... If for example the drip is disabled or doesn’t exist with the broker, the dividends can be reinvested into more shares and it doesn’t effect contribution space. Also, if the contribution space is maxed and one is receiving say 2k monthly dividends with no drip, reinvesting these cash deposits is acceptable?
Let's say one is holding some Split Share funds or maybe a REIT, and it pays distributions in the form of Return of Capital. ROC is tax free, right? So it would make sense to hold that in a non-registered account (IE not RRSP or TFSA).
After a while, the returned capital will eventually approach the cost paid for the funds, so the ACB (Adjusted Cost Base) will approach zero, after which the distributions will become Capital Gains.
At that point, right when the ACB has gone to zero, can the units still be transferred to a TFSA without triggering a Capital Gain?
Oh, and thanks for posting the video.
Hey Adrian, Thanks so much for all the useful information. You pushed me out of my comfort zone and I am starting to open my accounts now to start investing!!
One question I have is about transferring money to TFSA. I didn't get what do you mean by transferring only the down stocks. What happens if I want the dividends monthly to go to the TFSA. does this mean that I will be taxed on the capital gain? or you only mean when trading stocks?
Thanks so much for all your efforts!!
No taxes at all with the tfsa accoutn
Hi Adrian! Nice video about TFSA investing. I just got confused about one point. You mentioned few times about maximizing gains on it, to get the advantage the year ahead. Would you mind explain a little better about that?
Sorry not sure what you mean ??
@@PassiveIncomeInvesting Hi Adrian, same here. I think I got confused as well as @Tiago - it was the very last sentence where you said "The more income you make in the TFSA the more contribution room you could free up for next year". Could you please explain that again? Thank you and great work - so much useful information on your channel!
good advice in the RIETS! I am trying to max out my TFSA before I get to my RRSP. This is based on the assumption I can make a bunch of money in the TFSA that will be tax free...unlike the RRSP when I eventually have to close it or transfer it to a RRIF...I think?
Correct ! But don’t ignore the rrsp . It has huge tax advantages , especially if you have a salary over 50k
This is really really informative!
If one has a LIRA account or RRSP - is there anyway to transfer that over to the TFSA?
Don’t think so , you will have to pay fees and tax I think ..
@@PassiveIncomeInvesting thanks
if the shares you bought are listed on a Canadian exchange but the company itself is not canadian, do you pay taxes on it's dividends?
I’m the tfsa , no
@@PassiveIncomeInvesting so only if you buy shares on non-canadian exchanges or in usd?
Please watch my tax videos
great video as usual adrian :) always wondered what my contribution room is since i turned 18 after 2009
if i put 60k into my TFSA account and lost it all on options for example, my next year's contribution room does NOT increase by 60k, correct?
No, you lost it if that happens
If you go over the contribution limit in the same year through dividends and capital gains are you taxed when you take it out the next year?
You cannot go over your limit on dividends and capital gains , those are all tax free . It’s a “Contribution limit” , not an “account value limit “ . A tfsa account can be worth 500k without penalties
Sounds similar to an ISA except no carry over so it is use it or lose it
Can i take out canadian dividends from my tfsa tax free? Or does it effect my contribution room?
Hi Adrian, what if you buy the same stock or fund in smaller chunks...that will generate a large number of trades however be all on the buying side. Would that flag the tfsa as well due to large number of trades? Example investing $1000 in single trade versus in 10 trades at 100 per trade for cost averaging sake, all buying trades of course.
No that’s fine
Great video. I opened a TFSA account with Wealthsimple and put my limit 6000.00. I bought HYLD and HDIV. I received my dividends for the month. Can I buy more shares with the dividend money inside the TFSA or do I have to wait for next year since I spend my limit.
You can . The limit is only on the contributions
@@PassiveIncomeInvesting Thanks for the quick response.
Will i pay taxes in my tfsa on zwg?
What if I just want to sell some stock to clean including the fact that I held it for months already
Sorry , can you elaborate on your question ?
Passive Income Investing I want to sell some stocks in my Tfsa and focus on certain stocks
I was a noobie investor and bought stocks now being more into the market I dont want them but there all have gains they also have small positions so I dont think it worth having if I'm not adding into it
Passive Income Investing also held the stock for a few months now so I should be able to sell a few stocks with no issues?
Ok I see , yes you can sell anything you want in a tfsa and buy something else with the proceeds . Any capital gains are tax free and your contributions room doesn’t change because of a sale unless you withdraw it from the tfsa
I think the concern is when do they (government) audit you for trading too often. I have this concern as I did the same thing this year as I traded out of about 6 positions this year. They were all small but decided to change my style of investing for passive income.
regarding your first point on the benefits of a TFSA where you said you can withdraw money from your account and the withdraw contribution would be increased. would that increase be above the government cap or would it work within that margin. sorry if that question is a bit confusing.
Yes exactly . Whatever you withdraw from you tfsa can be added back the following year ON TOP of the new government limit for that year . So if you withdraw 6k this year and the new limit is 6 k for the new year your limit is 12k !
@@PassiveIncomeInvesting yes. Just to further clarify. One can potentially take out 50K in Dec. 2020 and put back 56K in Jan 2021 (Because you now have 6K new Contribution Room) - Hope that helps - I use this strategy to liquidate my top performers, pay down my mortgage, (maximum I can without triggering any penalty) and then put all the money back into TFSA the following January. Great Canadian Finance Channel, Adrian. I am telling all my friends about your channel. Love it.!!
Correct! And thanks for spreading the news
@@beyondrrsp5637 I understand what you're saying, but question: you still have to get the cash from 'somewhere' in January, to put back into your TFSA. Where? If you have that cash on hand, I can't see what the net benefit of liquidating some gains in your tfsa to pay down mortgage, then putting that liquidated amount + new contribution room back into tfsa in Jan, is, vs just using the cash (that you were going to put back into the tfsa in Jan), to do that lump sum mortgage payment in the first place?
I just transfer stocks fork my cash to my tfsa as soon as Jan 1st hits
I've heard in a few of your videos that there are fees applied when you withdraw money from an RRSP. I don't think that is true. There are two things that happen: 1. The amount you withdraw from the RRSP will be added to your income for that year. 2. similar to a paycheque, the bank will withold some funds for tax purposes. I believe the percentage depends on the amount withdrawn from the RRSP. Just like a paycheque, the amount withheld will be deducted from your taxes owing for that year. It's common to confuse the RRSP with the US version of 401k or IRA where, in addition to adding the amount to income for the year, there's a 10 percent penalty fee. I could be wrong about all of this, but I'm pretty sure that's the deal.
You get taxed and penalized if you take out money from an rrsp . It’s meant to take out later on when you turn it into a rrif account . But yes , you can still do it at the expense of penalties and taxes
What if you wipe out tfsa on a bad investment. God forbid. Just SOL?
Yup
I put some US growth stocks in my TFSA. Is there any implications?
No it’s all tax free . If they give a dividend , there’s a 15% tax in them . But not on the capital appreciation like I explained in the video
If I'm reinvesting dividends on other dividend stocks, will this count towards my tfsa contributions limit.? I'm currently max on the tfsa limit. Thanks
No only contributions count . Or if you deposit more money into the account . Dividends don’t affect your contribution room
Would investing $35,000 in a 5% dividend-yielding stock in TFSA, provide more in tax-free income, than the interest paid on a mortgage at 2.74% - or would it be smarter to use that $35K towards the lump sum privilege?
Mathematically the tfsa . Psychologically the mortgage
@@PassiveIncomeInvesting thank you
I would love to see an exemple of how you would build a maxed out TFSA account (75 500$) from scratch for someone who is looking for high dividends. How much % you would put in REITS, ETF, Splits and covered calls.
I saw your huge 600000+ portfolio, but would be very curious to see a simplified 75500 and se where your priorities would go ! Thank you !
It depends bro. On your style , goals and risk tolerance . I always preach a balanced approach . So a bit of everything while maintaining as much diversification as possible
Hey Adrian,
From my understanding I can withdraw my monthly dividends then add that amount to next years contribution. For example I withdraw my 2021 dividends of 5000$ then in 2022 I can add that $5000 to the $6000 to give me 11000$ for 2022? I usual just buy more EIT.UN with my monthly dividends lol!
Exactly right
@@PassiveIncomeInvesting Now I'm thinking I should withdraw the monthly dividends from my TFSA and contribute that to my RRSP account before the NewYear to really take advantage of the TFSA income. Then use $11000 in cash to put back in to the TFSA on Jan 1of the NewYear. What do you think? Is that what you do?
The combos are endless , now you’re using that 🧠 💡💵
@@PassiveIncomeInvestingThanks for your advice and strategies on your channel!!
I'm glad I parted ways with my " private wealth advisor" and there fees in 2018. They should of been doing some sort of withdrawal strategy with my TFSA account.
I guess they wanted me to invest more cash so they can collect more fees.
Lol probably
I dont understand why withdrawing dividends from a TFSA is useful (other than re-investing in a different dividend paying stock as apposed to DRIP) for contribution room... You only get that room next year dollar for dollar as you said but you didn't really gain more contribution room as you would just have to put that same amount back into the TFSA.
Am I missing something here?
It’s because I live off the passive income basically. The fact that you increase your room for next year is a bonus . Which means I can transfer a lot more of my funds from my cash to my tfsa , hence saving more on taxes
@@PassiveIncomeInvesting Hi Adrian, wouldn't it make more sense to live of the dividends from your cash account and don't touch the TFSA? Thank you for the work with these videos!
Hey Adrian. Huge fan. Not sure if you mentioned or not. The dividends your recieve in a tfsa, are they against your contribution room? Say $1000.00 in dividends for the year. Will that cut $1000.00 in contribution room?
Exactly the opposite , it grows your contribution room .
I’m a long term investor that buys and holds all stocks but I buy daily. Every day I deposit a small amount of cash to buy stocks with. Is this ok in a TFSA?
Buying is ok , it’s buying and selling constantly that could get flagged
@@PassiveIncomeInvesting Thx Adrian. This puts me at ease. Just started following. Terrific videos. So helpful.