Let’s make one thing clear, tax avoidance is legal. Governments waste lots of money, why give them more money to waste? Tax avoidance is finding ways to reduce present and future tax bills.
We all have heard the stories in which rich people take the money to tax havens in order not to pay taxes on their gains. Well, now everyone in Canada has the opportunity to open an account and legally not pay taxes on its gains.
The government of Canada offer you a wonderful opportunity to invest money and not to pay taxes on your gains. You hear that? ZERO taxes on your gains. This wonderful opportunity is called the Tax Free Savings Account (TFSA).
What is a TFSA?
It is a savings account which you can use to make investments such as stocks, bonds, and mutual funds, and the gains from those investments can be withdrawn 100% tax free.
How does it work?
It is as simple as going to your local financial institution and telling the teller that you want to open a TFSA account. You fill out the papers, deposit the money and that is it!
Once the account is open, you have to decide what kind of investment you want to make. You can decide to invests in stocks, bonds, or mutual funds.
You don’t have to be employed to be able to contribute.
You have to be 18 years +
As of 2013 you are allowed to contribute $5,500 per year
The contributions are cumulative and the system have been operational since 2009. From 2009 to 2012 the limit contribution was $5,000 per year. So if you were to start today, your limit would be $31,000 ( $20,000 from 2009 to 2012 and $11,000 from 2013 to 2014)
You can withdraw money when you want, for whatever reason you want. No explanations to anyone.
If, in a given year, you withdraw some money, you are allowed to redeposit the same amount the following year.
Remember, the benefit of having a TFSA is that you don’t have to pay taxes on your gains, either interest, dividends or capital gains, so you want to put investments that are highly taxed inside your TFSA. If you have an investment that pays out small returns, like Guaranteed Investment Certificate (GIC) which pays about 1.5% per year, you might as well keep this amount in your regular savings account. However, if you were to have investments that pay around 5% or higher, then a TFSA becomes more interesting. Since interest income is taxed higher than dividends or capital gains, a TFSA is an ideal place for high yield bonds.
I beg you guys, consider this investment vehicle. It is cheaper and safer than opening an offshore account, plus it is the most acceptable tax avoidance vehicle in Canada.
On June 29th we will have our next money talk meeting. We will get together to discuss business, personal finance and self improvement. If you are interested in coming, please send me message.
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