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TFSA for Income

The moment I was able to, I created my TFSA, and transferred some very high dividend shares into it from my investment portfolio. I had to declare a capital gain on them, but they've increased very well inside the TFSA since.

I also over-contributed by the value of $1,270. I was told by my broker that the penalty for over-contribution is 1%/month.

I am, though, reducing the over-contribution by withdrawing the monthly income from the TFSA, providing me with some tax free income, and thereby reducing the monthly over-contribution penalty, as I am withdrawing that extra contribution. It will be down to $420 by the end of the year, which means that my legitimate contribution for 2010 will be $4,580.

I might find something else in my portfolio which provides a nice monthly payment, and as long as it's greater than 1% per month, I could over-contribute again, pay the penalty and increase both my TFSA capital and my monthly tax free income, while again reducing my over-contribution with monthly withdrawals.

Don't know if the tax department has seen any of this or formulated rules about it. At least yet. Maybe I shouldn't tell anyone? :D:p
 

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Judging by the idea being kited by OP on this thread http://www.canadianmoneyforum.com/showthread.php?t=1162 "High level Tax Question - ..." I imagine CRA will be closing this loophole (if it is one) soon. Thereby making everyone who accidently overcontributes a small amount suffer because of the greed of the few who are trying to game the system.
In the case described in the previous thread, it is noted in the rules for TFSAs that they are not meant to hold securities of entities with whom the holder of the account does not deal at arm's length. Such investments would be fully taxable. Overcontribution aside, that is the main problem with the structure as proposed.
 
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