Readers’ letters | The Press

Personal finances, investments, consumption, retirement… Our columnist Marie-Eve Fournier goes around the small and big questions that concern readers of The Press.

TFSA: the rules of the game after a withdrawal

Even though the tax-free savings account (TFSA) has been around for 13 years now, how it works still raises a lot of questions. Managing contributions after a withdrawal comes up often, because no one wants to have to pay the 1% per month penalty that is imposed when the account ends up with a surplus.

The good news is that the calculation is very simple: any money withdrawn one year can be returned to the account the following year. Regardless of its origin (contribution, interest, return, dividend). “If your contributions of $81,500 have risen to $1 million, next year you can put back $1 million,” illustrates Antoine Auger, financial planner at IG Wealth Management.

Thus, in 2023, George will be able to return the $40,000 withdrawn this year to his TFSA, an amount that will be added to his annual contribution. Since 2019, this has been $6,000.

A person who has never maximized his TFSA – who has contributed less than $81,500 to it since 2009 – would not necessarily have to wait until the following year to return an amount withdrawn.

If your total contributions are $40,000, for example, and you withdraw $5,000 from your account this month, you could put that amount back in over the summer. In reality, it would be a new contribution bringing you gradually towards the maximum of $81,500. And the $5,000 withdrawal could be postponed to 2023.

The rules on the American market

Even if it seems strange, it is actually possible to pay taxes with a tax-free account like the TFSA.

René avoids this bill. But only in part.

Canadian residents do not pay tax on returns earned in a TFSA from shares of companies based south of the border, such as Tesla and Apple.

“But if ever an American company distributes dividends, it withholds tax from non-residents, and it’s 30%,” summarizes Olivier Custeau, director of Canadian and American taxation at Effisca, a firm specializing in the field. The puncture is done automatically. If the company pays you a $100 dividend, only $70 will end up in your account.

This 30% puncture can however be reduced to 15% by completing the W-8BEN form, continues Olivier Custeau.

The W-8BEN is a tax document used to certify that his country of residence, for tax purposes, is not the United States. It thus makes it possible to benefit from a reduced rate of withholding tax, since Canada has concluded an agreement on this subject with the United States.

The form is also useful for people who have US fixed-income investments in their TFSA, since it allows the withholding tax to be reduced to 0%.

It is important to update the document every three years. This is done online on the website of your financial institution or through the professional who takes care of your investments.

René will therefore not pay tax on the huge return he will obtain by selling his shares in Tesla and Apple (that’s what we wish him!). But Apple pays a dividend that is necessarily amputated at source.

Bank account security

Fraudsters are everywhere and their methods are becoming more sophisticated, which is becoming more and more worrying.

Cases of identity theft are countless. We even steal points! Remember, in 2018, customers of the PC Optimum loyalty program were robbed of thousands. An Ottawa resident saw 1.6 million disappear from his account all at once. A loss of $1600.

Who says that one day, it won’t be the contents of our bank account, our TFSA or our RRSP that will evaporate?

Contrary to what one might think, the Canada Deposit Insurance Corporation (CDIC) does not insure savings held in major banks against all risks.

It “does not cover cases of fraud or data theft. Deposit insurance protects insured deposits in the event of the bankruptcy of a member institution”, indicates its spokesperson Mathieu Larocque. As for accounts at Desjardins, they are insured (in the event of bankruptcy) by the Autorité des marchés financiers (AMF).

If you are the victim of a scammer, you should instead turn to your financial institution to recover your due.

Each offers its own guarantee against unauthorized transactions. But as a general rule, we promise to reimburse the defrauded client in full, provided that he has discharged his responsibilities. This means that we must take the appropriate measures to avoid becoming a victim of fraud: choosing passwords that are difficult to discover, hiding them well, monitoring what is happening in our accounts, remaining vigilant.

It is therefore not necessary, Dominique, to take out other specific insurance for this risk.

That said, the risks of having your RRSP emptied are slim. “Banks in Canada are strong security organizations, widely recognized for their advanced cybersecurity practices,” says the Canadian Bankers Association (CBA), noting that their security teams use “state-of-the-art technologies and systems in order to protect their activities against cyberattacks”.

But since you can never be too careful, it is important to know how to protect yourself well. The CBA’s Cyber ​​Security Toolkit explains types of fraud and how to avoid them.

If something bad should happen to you despite everything, contact your financial institution and the police right away.

Help his son to shelter from the taxman

With house prices skyrocketing over the past two years, more and more parents want to help their children acquire property. But this decision can have costly tax implications if certain precautions are not taken.

“It’s something we’ve seen quite frequently over the past few years. Banks require the parent’s name to be on the deed of purchase of the property. It’s not a simple endorsement,” says Sarah Phaneuf, partner and tax specialist at Raymond Chabot Grant Thornton.

This can turn into a tax bill the day the child sells the property or the parent wants to transfer the property entirely to their child. In effect, the parent then finds himself selling part of a property that he generally cannot designate as his principal residence. The capital gain therefore creates a taxable capital gain.

A solution is however at your disposal, Diane, to avoid that the service rendered to your son costs you dearly.

“There is, for that, a nominee agreement, which is a legal contract,” says Sarah Phaneuf. This document, which can be drawn up by the notary at the time of acquiring the property, specifies that the name of the parent appears next to that of his child on official documents only at the request of the bank and that it is the child who is the true owner of the premises.

Then, you must send this agreement to the tax authorities in the year following the transaction by attaching it to your income tax returns sent to Quebec and Ottawa. This way, the day the property is sold or fully returned to the child, the parent does not end up with a tax bill.

The overly popular longevity card

Last Sunday, some readers of this column were unable to access Club Vita’s interactive map which indicates whether or not the way of life in a neighborhood favors the life expectancy of its residents.

The reason for this technical problem? Too much traffic for a tool originally designed for professionals in the retirement field, the company explained to me. Everything is now settled.

Those who were able to enter their postal code and discover how the tool works discovered that in Quebec, in a large number of regions, women are entitled to a lot of pink. This means that their life expectancy at age 65 (at the time of retirement) is lower than the average for Canadian women. It was not a mistake.

Club Vita also points out that, according to Statistics Canada, Quebec women have a life expectancy at age 65 lower (by a few months) than that of women in British Columbia, Ontario and Alberta. For example, it is 21.94 years in Quebec against 22.43 years in Ontario. That said, ZIP code, as I had written, is the most predictive indicator, but there are others like type of job, marital status, and health status, of course.