The TFSAs true benefit is the fact you don’t ever pay tax on the GROWTH of your earnings (either while IN a TFSA and when withdrawn)… My question with all my clients then becomes, why are we holding GICs and interest bearing accounts inside our TFSA when we have growth oriented portfolios out there?

For example: SUppose in 2009 someone invested $5000. Let’s assume they earned 3% in a GIC (goodluck getting 3% during 2009 on a one year GIC. Now, calculating that through, you’ve earned $150 dollars in interest income. And, going by the comments in the above article, let’s assume the poor people that the “TFSA was designed for” made this transaction and are in a 21% combined tax bracket in Ontario. If this money is OUTSIDE the TFSA, you would pay $31.5 in taxes.

Now, let’s assume you had that $5000 invested in the market. 2009 saw a pretty decent recovery from the 2008 correction and let’s assume your retirement portfolio as a moderate investor was up 20% – mine was…

This is a $1000 capital gain. If held outside your TFSA, and paying tax on 50% of your capital gain, this individual (assuming they cashed their investment) owes 105 in taxes… ($1000 gain x 50% x 21% MTR).

I’m sorry, but paying tax on somehting that barely earns investment incomes is a small tradeoff when we compare it to the savings on our long term retirement portfolios.

Consider holding your short term savings goals in tax advantaged mutual funds (ie. short term corporate class investments) instead. You’ll net better than a high interest savings account and the tax advantages speak for themselves.

Let your TFSA do what it’s designed to do and bring you the maximum benefits – defer taxes on investment returns – not small yielding interest bearing accounts..

http://scotiabank.com/cda/content/0,1608,CID12360_LIDen,00.html#14

http://www.rbcroyalbank.com/RBC:SrkdN6wWAA8AGMDAE4s/services/taxfreesavingsaccount/tax-free-savings-account-faq.html#22

http://www.taxtips.ca/tfsa.htm

interesting strategy but I am almost sure you can’t give your TFSA as collateral (the same way you can’t secure a loan with a RRSP account.).

Have you read anything different?

This way, you don’t pay tax on the interest in the GIC’s. You get a tax deduction of the interest on the loan, and you also get tax advantaged Canadian dividends. Also, you may end up with some capital gains if you rotate through stocks, but they are tax advantaged too.

Anyone know of a good place that offers low interest rates on secured loans that get secured by TFSA’s?