TFSAs: GIS and Business Income

December 12th, 2014 by Potato

First, a quick boring set of personal notes:

    1. I got sick shortly after the book launch. Not a whole mess of symptoms, just a bad cough — but it’s lingered and if anything has been getting more violent. I’ve lost my voice from coughing, and now sound like a squeaky, sickly 12-year-old. Would you like fries with that? [yes/YES]
    2. I only had a few things left on my post-book-launch to-do list, unfortunately two of those items were spreadsheets to finish fine-tuning and I just can’t brain right now. Thank you for your continued patience. I also haven’t been very good at responding to emails and pushing the book because of all that — please send me a poke if you’re waiting for me to respond to something.
    3. I have been keeping up with shipping books out at least. Remember that you should order by Monday if you want to be sure that your purchase will arrive before Christmas! Note that right now with the sale at Amazon and Indigo that retailers may be the best place to buy The Value of Simple rather than directly (depending mostly on whether or not you’re buying anything else to get free shipping).
    4. Don’t forget to please put a review up on Amazon and/or Indigo if you’ve finished the book!

Two somewhat hysterical issues around the TFSA have been running around the last few weeks. The first is some worry that people can stock big TFSAs and thus have lots of money to live on, but because it’s not income they’ll still get GIS. Will it lead to a TFSA nerf?

Maybe it will. It does seem like a loophole or unintended consequence that in a few years someone could have a pretty decent pot of money in a TFSA and yet still get GIS. Young people starting today may be able to exclusively use TFSAs to fund their retirement, especially if the contribution room doubles next year. But there are already loopholes for otherwise rich people to collect GIS: like many government programs, it is income tested and not wealth tested. So people with tonnes of money in a chequing account earning no interest could collect GIS (though it may not be wise to do so vs. investing in a TFSA), as can people with large real estate holdings that are not spinning off active income. I don’t see the government ever closing the real estate loophole. Maybe they will close the TFSA one in time, but it’s going to take another decade or so before it’s really an issue for enough people to have enough TFSA room to be doing well enough that they clearly shouldn’t get GIS but do.

Moreover, we’ve known this since the TFSA first launched. Indeed, the general advice is for lower-income people to prioritize saving in their TFSA specifically so that they can keep their GIS eligibility.

The second is that the CRA is cracking down on some day traders, disallowing the tax shelter for carrying on business. A key point of information that I haven’t seen in these articles is that the regular partial inclusion of capital gains doesn’t apply for professional traders — it’s all business income. So if you just got lucky in your TFSA it doesn’t look likely that the CRA is going to come after you and disallow the tax-free nature of that gain — it will almost certainly require a few other factors, which would have put your non-registered gains at risk as well. Again, I don’t think it’s something the average person has to start worrying about now.

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