Author: Mike Holman

I wasn’t sure whether to call this post “Canada’s stupidest people” or the title you see above.  This post is in the same vein as another post I wrote a while ago about bad for-sale-by-owner signs.

I recently read an article about a family in Ontario that is trying to sell their “haunted house”.  To quickly summarize the article –

Family bought dream home, realized it was haunted, moved out and is paying mortgage plus rent, put house up for sale while holding press conferences to talk about exactly how haunted the house is.

Here are three thoughts I wanted to address – feel free to add any of your own!

Why advertise the fact that the house is haunted if you are trying to sell it?

According to the article, only the locals knew the house was haunted – so why do you want to scare away the rest of the potential buyers?  If I was trying to sell a haunted house – I would not say anything about ghosts, apparitions, witches, goblins, gremlins – even if they were all partying nightly at the house every night.

These people are nuts

I don’t believe in ghosts and while I have no idea what these people are up to – either they are crazy or trying to pull some sort of scam.  The odd thing is that it is not just 1 or 2 people involved – there is a couple and their 2 younger kids who all refuse to go into the house (according to the mother at least).

They left their possessions behind

“We left our things behind because we were scared that we would take whatever it is that’s here, with us”

This is kind of a part 2 to both of my first points – 1)  It drives home the point that this house is clearly not worth buying so why are they telling everyone?  2)  Not only are they nuts – they are really, really nuts!

I’m skeptical

I really have a hard time believing that everything in this story is exactly as presented.  I think some young journalist out there who is looking for an interesting story to break should go and talk to the family (hopefully not in tongues) and find out what is really going on.  Offer to spend a night in the house and see if you make it out alive – if nothing else, you should end up with a good article.

I was talking with my Dad recently about money stuff (he’s a big investment nut as well) and he suggested writing about the TFSA again since it is going to be effective fairly shortly (Jan 1, 2009).  A rather timely and excellent idea so here it is!

What is the TFSA?

A type of investment account where you make contributions but don’t get any tax refund. While the money is in the account there are no taxes applied to any kind of earnings such as interest, dividends, capitals gains. Any withdrawals from the account are not taxable and won’t count against any government programs ie GIS, OAS.

What are the TFSA rules?

• You can contribute $5000 per year to this account for the years 2009 to 2012 and $5,500 for year 2013 and beyond.
• The contribution room is carried forward.
• No taxes on any earnings.
• No taxes on any withdrawals.
• When you withdraw money from the account, the contribution room available gets increased by the amount of the withdrawal.  Keep in mind that when you do a withdrawal, the new contribution room only gets added for the following year so you can’t keep withdrawing and contributing during the same year.
• You can transfer between financial institutions – this will work the same way as transferring your RRSP – there will be no effect on your contribution room.
• Similar to an RRSP, you can have multiple TFSA accounts.
• The TFSA annual limit will be indexed to inflation.  However, it will only be increased in $500 intervals so the cumulative inflation number (over several years) has to be 10% before the limit will be increased to $5500.
• You can withdraw money from the TFSA and transfer it to a non-registered account or RRSP.

When did the TFSA start?

2009.

You can set up a TFSA account starting Dec 1, 2008 and the first deposit can occur on Jan 1, 2009.  There are a number of banks offering to ‘pre-enroll’ you in a TFSA or even ING which will give you a bonus to pay for your taxable interest for the remainder of the year.  While there is nothing wrong with opening an account early, with the exception of the ING offer, there is no real benefit to you as well.

More information on the TFSA start year.

TFSA benefits

Any money that you might be saving for emergencies or upcoming large purchases will have a constant tax drag in an non-registered account. With the TFSA, this tax drag no longer exists so you will end up with more money for your purchase or emergency.  This is the biggest benefit to the TFSA in my mind.

Another significant benefit is retirement planning – while the TFSA is not as good as the RRSP for most people, it is much better than a non-registered taxable account.

More information on the TFSA

Benefits of the Canadian tax free savings account

Tax Free Savings Account (TFSA) Basic information for Canadians

TFSA Over-Contribution Penalty – How To Fix

CARP for those of you who don’t know is a Canadian organization of retirees which pushes for various government policy changes on behalf of Canadian retirees.  One of their recent public campaigns has been a call to the Canadian government to reduce or eliminate mandatory withdrawals from RRIF (registered retirement income fund) accounts on the basis that:

1. The mandatory withdrawal amounts are too high and retirees will outlive their money.
2. Cashing in their retirement investments when the market has crashed will result in very poor portfolio performance and…you guessed it – retirees outliving their money.

According to their spokesperson Susan Eng, it is an “It’s become an absolute emergency“.

First of all – a brief primer on RRIF accounts:

RRIF accounts – what are they?

RRIF accounts are the things that your RRSP will turn into when you turn 71.  RRIFs are tax-sheltered accounts but unlike RRSPs, once you turn 72 there is a RRIF mandatory withdrawal amount each year.  The amounts start at about 7% and go up from there.  The withdrawal amounts are added to your taxable income in the year of the withdrawal.

The issue that some people have is that they sometimes don’t want to take the minimum amount out each year because they don’t need it or they want it to be part of their estate.

Why CARP is full of CRAP

The first argument CARP has had for a while (mandatory withdrawal amounts are too high).  They say that the 7%+ withdrawal is higher than what retirees can earn on fixed income investments.   The second argument which kind of contradicts the first is that seniors shouldn’t be forced to sell equities in a down market.

My response is as follows:

1. Regardless of how much money retirees are “forced” to withdraw from their RRIF accounts – they don’t have to spend any of it.  Yes, the withdrawal is taxed (like a withdrawal from an RRSP) but the retiree is perfectly capable of putting the money into a TFSA or a taxable account for a rainy day or to leave in an estate.
2. Equities do not have to be sold when withdrawing from a RRIF account.  If you have investments (mutual funds, stocks etc) in a registered account such as a RRIF or RRSP and you want to move them to a TFSA or taxable account – you can do this with an ‘in-kind’ transfer which means that the securities just move from one account to another.  If you have 5 shares of Bank of Montreal in your RRIF account then you can transfer the 5 shares to your open account and you don’t have to sell anything.  You are still making a withdrawal which is taxable but you haven’t sold a thing.
3. RRIF accounts weren’t born yesterday.  When you put money into an RRSP – you defer income taxes.  When you take the money out of the RRSP you pay taxes.  If you leave your RRSP money long enough then eventually it will have to be converted to a RRIF account which is subject to mandatory withdrawals at age 72.  Those are the rules – if you don’t feel the RRSP/RRIF combination is “fair” then don’t use them.

Conclusions

CARP seems to able to spend a lot of money putting the word out that RRIF minimum withdrawals are an ’emergency’ when it is quite obvious to me that most retirees have a lot more things to worry about then being forced to withdraw retirement funds that they don’t need.  If I was a member of CARP then I would be questioning why they aren’t putting their resources into helping the majority of retirees rather than the very few who have RRIF money they don’t need.