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Are there TFSA penalties for holding foreign investments?

Canada’s Tax-Free Savings Account (TFSA), as the name implies, offers tax-free contributions, interest, dividends, and capital gains. It can be withdrawn tax free. But what if it contains foreign investments? Would these be taxed? The answer is that it depends. The TFSA guide list “permitted investments.” Any security not on the list is not qualified. The best way to find out if you are safe is to check this list: https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4466/rc4466-17e.pdf.

Key Takeaways:

If the investments you’re considering are listed on the approved list of designated exchanges, then you’re good as long as they remain listed.
Consider your situation. Would a U.S. dividend-paying investment make more sense in your RRSP, RRIF, or open account, where you can recover the U.S. withholding tax?
There are plenty of qualified investments in Canada, so you don’t need to risk a penalty by accidentally placing a non-qualifying investment in your TFSA.

“If an investment becomes delisted and moved to over-the-counter (OTC) then it no longer qualifies, with the exception being Canadian public companies, which can become OTC and still be considered a qualified TFSA investment.”

The CRA is tracking alcohol sales to nail tax dodging bars and restaurants

Establishments that serve alcohol are receiving additional attention from the Canadian Revenue Agency. The tax agency feels the rate of tax fraud in restaurants and bars that serve drinks is on the rise. As many such businesses operate heavily with cash, it can be tempting for owners and managers to assume these non-electronic payment methods can go unnoticed. The CRA is tracking how much alcohol is bought and then reviewing business records to catch any issues. Currently, the CRA is focusing on Ontario as well as some other non-disclosed provinces. However, they may expand their efforts to every province and territory.

“The cash-based nature of the food and beverage sector, in addition to the growing use of electronic sales suppression software within this industry, make it an ongoing area of tax non-compliance concern.”

Canada Revenue Agency still subjecting taxpayers to ‘humiliating, frustrating’ benefit review …

Benefit reviews have become an almost nightmarish process for some Canadians. The stories have hit the media, and raise considerable attention to the problem. As a result, the Canadian Revenue Agency has changed its process for how it selects review subjects and proceeds with the review of benefits someone might be receiving. Some tax professionals still say there are problems, however. Some benefit recipients are being advised to simply try and throw themselves on the mercy of the CRA as the only option to ease the pain.

“But Canadian taxpayers who spoke to the CBC about their current battles with the CRA say the changes the agency has made don’t go far enough and have made no difference to their experiences so far.”

Three ways to leave a legacy through charitable giving

Philanthropy is spotlighted during ‘Leave a Legacy Month,’ in Canada. To that end, The Financial Post has a few useful suggestions to make giving a part of one’s financial routine. For the short term, cash is one way to make an impact. There are easy and efficient ways to do this regularly, for instance, by taking advantage of payroll deductions and automatic withdrawals, offered by employers and credit card services. If your goal is for longer-term estate planning after you’re gone, then you can create a personal foundation, with a mandate to disperse monies to various charities over a specified period of time. You can also bequeath assets, such as estate funds and tax shares to those organizations you wish to benefit. Donations also come with both federal and provincial tax credits. With the proper planning and professional advice, there are lots of opportunities to make a difference in our own way.

Key Takeaways:

There are many ways to make a meaningful gift to a cause close to our hearts, either in the near term or after we are gone to those organizations that matter to us.
With estate planning, one can bequeath specific amounts to go to charitable enterprises, or one can transfer stock shares.
A donor advised fund allows one to make what is tantamount to a foundation with a mandate to disperse specified fund amounts to various charities over a given period of time.

“Cash donations are the most common way to make an impact on the communities you care about and it has never been easier. Many employers offer automatic payroll deductions and charitable organizations can set up pre-authorized debit options through your bank account or credit card.”

Sell your losers, avoid dividends and more tips to minimize your investing tax bill

Investing can be a tricky process. Knowing what to invest in, and when, and how much, can be difficult. So too can be the decision of when to leave an investment, or to stay in. But regardless of your investing acumen, minimizing your tax liabilities on investment income is key to maximizing your financial return. The most important element to sound investment strategy is to take full advantage of your Tax Free Savings Account. It’s an investment vehicle designed to encourage savings, which is why it’s tax-free.

“But one thing every investor can agree on is taxes. No one likes them. They are part of investing, but there are ways to at least keep them as low as possible. Here are five tips.”

Is it time to diversify? Three tips to future-proof your business

Nothing’s ever certain in business; even the most robust and profitable business today could find themselves being forgotten tomorrow. One way to protect your business is to be strategic about how you diversify your business. Spread your risk by not focusing on only one product, industry or service. Researching opportunities for new locations and complementary offerings, communicating your plan and executing the right implementation to preserve culture will all help you succeed. Always pushing and trying new things will help you stay ahead of fierce competition.

“Never underestimate the power of a good reputation. From your shareholders to your employees, it will be easier to get people on board and support the next steps.”

Trudeau Quietly Approves $10.5 Billion Corporate Tax Cut To Compete With Trump

In their recent fiscal update, the Liberals introduced new corporate tax breaks to help stimulate investment in Canada. The move was largely seen as a response to U.S. tax breaks given to U.S. businesses by the Trump administration. Instead of focusing only on Alberta’s struggling energy sector, the Liberals decided to help improve the competitiveness of Canadian businesses across all industries. Some people are concerned about the rising budget deficit, but even with the cuts, the 2018 budget deficit is expected to be lower than the projected C$18.1 billion. Time will tell if this strategy is the right one.

Key Takeaways:

New corporate tax breaks, which will be worth some C$14 billion over the next six years, were introduced in a fiscal update on November 21, 2018.
By allowing businesses to write off capital investments more quickly (particularly in manufacturing), businesses will be further incentivized to invest in expansion, which in turn should help improve competitiveness.
While the cuts effectively hand more money back to Canadian companies, Trudeau’s Liberal Party has resisted cutting the corporate income tax rate (preferring to sneak its corporate handouts in obscure “budget updates” that will likely go unnoticed by the Canadian public at large).

“According to Bloomberg, the cuts represent the Trudeau government’s biggest gift to Canadian businesses since taking power.”

Forecasting which tax breaks may be axed

There’s plenty of speculation around what tax breaks will be eliminated by Canada’s federal government. Two popular tax breaks, which are viewed by many as sacred cows and could spell political disaster if they were altered, are: the tax-free sale of a primary residence and the tax free transfer of wealth upon death. This leaves the capital gains tax rate as the most likely target, given that there is a history of adjusting it. With that said, we’re reminded that this is all speculation.

“This will be the last budget before the next election, so the federal government will want to offer some tangible benefits to voters.”

Ottawa’s tax hike on the one per cent ended up lowering government revenues

Tax codes and how to balance them to ensure all citizens are taxed fairly to support their government’s revenue are a complex subject. On its face, the subject can be boiled down to increasing how much revenue comes in from taxes, or decreasing what amount of revenue the government spends on any of its efforts. Yet simply raising rates doesn’t necessarily boost how much tax revenue a country might collect. Canada is facing that with a recent tax hike on the top one percent incomes that has seen total tax revenue collected actually fall.

“For years, it has been long-argued by various economists that a government is only able to raise taxes so high before the rate itself creates a psychological barrier to work such that reduced economic activity by those high income earners leads to a reduction in tax revenues.”

GICs have a hidden commission

Never assume that an investment comes without fees. GIC commissions are often hidden, and many investors do not even realize they are paying them. If you use a broker, a commission is paid to the broker and is included in the cost of your GIC. These upfront commissions are paid because the broker does not make any on-going money (aka”trailing commissions”) after the initial purchase. Be aware that if your broker charges annual fee based on the value of your portfolio, then they should not be collecting it on a GIC, or else it’s considered double-dipping.

Key Takeaways:

Fees on financial products can be transparent or hidden, but they are always in there somewhere.
GICs commissions are so well hidden that very few investors even know they exist.
Advisors deserve to be paid, but you shouldn’t have to pay them twice.

“If you’ve ever wondered why you get better rates when you buy GICs directly from the issuer, rather than through an advisor or brokerage, that’s because direct-sold GICs don’t include that commission to the middleman.”