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A Few Facts and Strategies Using the TFSA (Tax Free Savings Account)

It has been less than a year since the TFSA was created by the Federal Government and we are already generating a completely new set of strategies with this new tax saving tool. I just came back from a financial planning class where we got a few additional facts and tricks to be used with a TFSA.

The TFSA mixed with the HBP

Don’t we love acronyms? The TFSA, HBP and RRSP can now team up to efficiently create a healthy down payment when buying your first home ;-D

Instead of contributing directly into your RRSP and then use the Home Buyer’s Plan (you can see a very nice description of the HBP [1] over @ Million Dollar Journey), you should now consider using your TFSA first.

Accumulating cash down for a property may take a few years. If you start accumulating at a young age, you may not earn much and your tax rate is usually lower. Therefore, it would a better idea if you start accumulating money within your TFSA.

Then, once you are close to purchasing your property, withdraw from your TFSA investment to contribute into your RRSP in order to trigger a higher tax return. You can now benefit from the HBP by withdrawing from your RRSP (after waiting more than 89 days), you receive a nice tax efile return [2] and you just created additional space in your TFSA (assuming you made money with your investments). Isn’t that great?

Parents can help boost your TFSA

It can be even better if parents want to help. As there are no tax implications with the TFSA, no attribution rules either. As such, parents can fully contribute to their children’s TFSA (starting age at 18) and nobody will ever get taxed on the investment return 😀

When should you die?

When considering the best timing for death, I would choose January 2nd. In this way, my estate would benefit from an additional 5K to invest in my TFSA (which will be rolled over to my wife). Your estate liquidator [3] will be able to use your previous year’s income to contribute to your RRSP as well. Since we all have to die one day, I reserved my date already 😉

Creating contribution room or avoiding high tax investments?

There is a big debate about the TFSA with regards to its usage. Should we invest in bonds and CDs since they become tax free (instead of being taxed in the highest tax bracket) or should we invest in the stock market in order to create additional contribution room upon withdrawal?

I say it depends on your goal. If you do not plan on using your TFSA funds for several years, you may want to invest in the stock market and hope for the best. On the other hand, if you want to buy a house in 12 months, you might consider safer investment products such as bonds 😉

The TFSA was created for poor people in the first place

Did you know that the TFSA was created to protect poor individuals? At retirement, all sources of income are calculated when it comes time to decide if you are entitled to receive additional subsidies from the government or to know if you qualify for tax credits.

So, if you withdraw a 2-3K per year from your 20K RRSP, you may pay up to 50% in taxes (considering the loss of tax credit and additional government support). This is why transferring money from your TFSA to your bank account can be very interesting for low income individuals.

So, this is what we had looked at during our TFSA class… Do you have any other strategies you want to share about your TFSA?

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11 Comments (Open | Close)

11 Comments To "A Few Facts and Strategies Using the TFSA (Tax Free Savings Account)"

#1 Comment By MDj On September 22, 2009 @ 7:13 am

Thanks for the link FB. Great article btw.

#2 Comment By Phil Plasma On September 22, 2009 @ 8:11 am

I’ve been thinking about using the TFSA to generate monthly cashflow. Since any return on investment is not taxable I figure that if every year I can put in the max (it started at 5000 but is indexed with inflation at increments of 500$) eventually the cashflow I get out of it could help out quite a lot in terms of living expenses. The question remains, what type of investment do I go for to get the best monthly payout?

#3 Comment By Traciatim On September 22, 2009 @ 10:01 am

How about buying 5k worth of GIC’s inside your TFSA, and using it to secure an investment loan on a regular taxable account and buy dividend producing stock out here.

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?

#4 Comment By The Financial Blogger On September 22, 2009 @ 10:55 am


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?

#5 Comment By Traciatim On September 22, 2009 @ 12:58 pm

I believe it was answered in the original CRA docs that I read, but you can find is also under the ‘borrowing’ section on:


#6 Comment By Traciatim On September 22, 2009 @ 1:58 pm

I still can’t find it on CRA’s website . . . but here are two more reputable sources:



#7 Pingback By Carnival of Financial-Planning 10-02-09 On October 2, 2009 @ 2:30 pm

[…] Financial Blogger presents A Few Facts and Strategies Using the TFSA (Tax Free Savings Account) posted at The Financial Blogger, saying, “It has been less than a year since the TFSA was […]

#8 Comment By Brian On January 10, 2010 @ 4:46 pm

Here’s a tip..

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..

#9 Comment By Barry On January 19, 2010 @ 11:27 am

Brian, good analysis I agree with you. Your last sentence is not quite accurate. the TFSA does not DEFER taxes, it AVOIDS any tax at all on investment returns. The RRSP defers it.

#10 Comment By Michael Lalonde On April 27, 2012 @ 10:16 pm

Suppose that Pat and Chris are married, and that Pat is the higher earning spouse.

On January 1, 2010, Chris opens a TFSA with $10K contributed by Pat. Chris invests well: there is $17K in his TFSA on Dec 31, 2010. Here are two different scenarios:

(Scenario 1) On Dec 31, 2010, Chris withdraws $7K — the gains made — and invests this $7K in a nonregistered account. On Dec 31, 2011, Chris realizes a capital gains in the nonregistered account of $5K. In whose hands are the new capital gains of $5K taxed?

(Scenario 2) On Dec 31, 2010, Chris withdraws the entire amount, $17K, and invests this $17K in a nonregistered account. On Dec 31, 2011, Chris realizes a capital gains in the nonregistered account of $5K. In whose hands are the new capital gains of $5K taxed?

#11 Comment By The Financial Blogger On May 6, 2012 @ 4:22 am

Hey Michel!

this is a pretty good question for a tax expert ;-).

I’m not an expert but I’m pretty sure that once Chris invest the money, it becomes his and not Pat’s. The best way to do it would be to not do everything in the same year (as you are obviously trying to switch Pat’s money to Chris low tax bracket).

But in the end, who would like to withdraw money from a TFSA to invest in a taxable account?