TFSA - No Need To Rush


First Published: December 10, 2008

Recently, an ADJ reader sent the following email:

Hi Dawn,
Been reading your blog for some time now and getting more and more interested in learning to handle my own finance.
I would like to know more details about the new Tax Free savings account and your take on this new thing and how we can use it best.
Thanks for your time!

Ms. ADJ Reader (Withholding name for privacy)

Today’s article is specially written for Ms. ADJ Reader and many other ADJ readers who are waiting eagerly to read ADJ article on TFSA.

What Is a Tax Free Savings Account?

TFSA is an account type where you can make contributions, grow your money (means you can earn interest or income), and take out money without paying any taxes.

Doesn’t It Sound Like an RRSP (Registered Retired Savings Plan)?

Kind of. However there are some major differences. Let’s look them one by one.




When you put money in an RRSP, you get tax slips to reduce your taxable income

contributions in a TFSA do not reduce your taxable income

When you take out money from an RRSP, you pay taxes on withdrawals and your withdrawal will be added to your income (it simply means you taxable income will be higher)

TFSA withdrawals are tax free

RRSP account has age limit (must be terminated by 71);

TFSA has no age limit

Once you put in money, your contribution room is used up. You will not be able to regain your contribution room back by taking out money

Amount withdrawn will create equal contribution room

Some TFSA Features

·   Canadians aged 18 and older can save up to $5000 a year.

·   Annual contribution limit will be indexed and will increase gradually.

·   Contributions will not be tax deductible but income and gains will not be taxed.

·   No taxes to pay when you withdraw money out of TFSA.

·   Income earned or withdrawals will not affect eligibility for Federal benefits such as Old Age Security, Canada Child Tax Credit, Guaranteed Income Supplement.

·   No taxes to pay when you withdraw money out of TFSA.

·   Unused room can be carried forward indefinitely.

·   TFSA account can hold same products like RRSP, such as GICs, stocks, mutual funds, and many more.

·   Upon death, your TFSA can be transferred to your spouse without tax implications.

·   Excess contributions will incur a monthly penalty tax of 1% – just like an RRSP.

TFSA Ideas

You have to be creative here. There are so many ways you can use a TFSA account. Here are some I can think of off the top of my head:

·   If you don’t have room in your RRSP account, use TFSA.

·   If you don’t have room in your RESP account, use TFSA.

·   Use TFSA for short-term savings.

·   Use TFSA for long-term savings.

·   Use TFSA to keep your emergency funds.

My Take

You should use TFSA to its full limits; however, I don’t see there is any need to rush. You will see bank ads and some personal finance blogs making it sound like you should jump into it right now – otherwise, you will miss the boat. This is simply not not the case. TFSA is not going anywhere and there is no need to rush. Take your time to draft your investment planning and strategies and then make full use of TFSA.

CI Financial's Unsolicited, Hostile Bid

CI Financial announced yesterday an unsolicited hostile offer to acquire all of DundeeWealth Inc for $20.25 per Dundee share. This offer follows the news last week that Dundee Wealth had reached a deal with Scotia Bank to sell Dundee Bank for $260 million and 18% of Dundee Wealth for $348 million (27.3 million shares at $12.76 each). Scotia’s offer represents a 5% premium to Dundee’s share while CI’s offer represents a 52% premium.

Not all CI’s bids were successful in the past. Let’s look at both successful and unsuccessful bids.

Successful Bids

CI bought the followings in the past:

1999 - BPI Financial Corporation

2002 - Spectrum Investment Management Limited

Clarica Diversico Ltd.

2003 - Assante Corporation

Synergy Asset Management Inc.

Skylon Capital Corp.

2004 - IQON Financial Management Inc.

Synera Financial Services Inc.

2007 - Rockwater Capital Corporation

Unsuccessful Bids

2000 - Mackenzie Financial Corporation

2005 - Clarington Corp.


The major shareholder of Dundee Wealth is Dundee Corporation. Dundee Corporation owns 55% of the outstanding shares. Ned Goodman and his family created and still operate and control Dundee. It is unlikely that they would give up full control of Dundee Wealth (to CI) but they seem to be comfortable giving up 18% control to Scotia. I will be surprised if this bid turns out to be a successful bid for CI. Whether this bid becomes successful or not, one thing readers can be assured of is that this will not be the last bid attempted by CI Financial as CI has a history of making hostile (and friendly) bids for financial companies.

First Published: Sep 26, 2007