Thursday, April 30, 2009

TFSA, or tax-free profits for Canadians

The government of this wonderful country of Canada has introduced the new Tax-Free Savings Account (TFSA). Starting in 2009, Canadians aged 18 and older can save up to $5,000 every year in a TFSA. Investment income (interest, dividends, capital gains) earned inside a TFSA account will not be taxed, not even when the funds are eventually withdrawn (though losses are not deductible either).

Canadiens, open a TFSA account with one of the soundest banks in the world:

While a primary consideration should be given to contributing to an RRSP (for the immediate tax relief), the TFSA has several attractive features. It doesn't have to be converted into anything else by age 71. It's effectively invisible (both its earned income and money withdrawn from it) in regards to federal income-sensitive benefits and credits, an important point for e.g., future recipients of OAS (Old Age Security) pension. Any amounts withdrawn can be put back in the following year(s), without affecting the regular contribution room available.

Almost everything you might want to know about TFSAs can be found on the CRA (Canada Revenue Agency) site. For instance, if you don't manage to open such an account this year, you will not lose this year's $5,000 contribution room: you can open a $10K account in 2010.

As earned income is not a prerequisite for contributing to a TFSA (unlike an RRSP), you can gift money to your spouse and/or adult children for their TFSAs. The earnings in these accounts are not attributed back to you for tax purposes.

Note that if you purchase dividend-paying US stocks (e.g., Microsoft) in your TFSA, a 15% non-resident withholding tax applies to the dividends (unlike inside an RRSP or RRIF, but like in a RESP), which cannot be recovered.

Financial Post's TFSA Centre has a few investment ideas.

Adam Smith (1723-1790), who studied moral philosophy and is being considered by many the father of modern economics, once told a learned society in Edinburgh, "Little else is requisite to carry a state to the highest degree of opulence but peace, easy taxes, and a tolerable administration of justice."

Canada's GDP likely fell 7.3% in the first 3 months of 2009

On Thursday April 23, Canada's central bank said the GDP (Gross Domestic Product) likely fell 7.3 percent in the first three months of 2009, which would be the biggest contraction since comparable records began being kept in 1961.

The Bank of Canada cut its interest rate by a quarter point to 0.25 percent, and it will likely stay there through June 2010 according to the Bank.

NB While the 7.3% figure is just a projection, most Internet sources seen cited it as the actual shrinkage (something, we gather, like laundry) in 1Q Canadian GDP. Go figure...

Wednesday, April 29, 2009

FED rates unchanged at 0% - 0.25%

On Wednesday April 29, the FED (Federal Reserve Bank) in the US stated that the economy has continued to contract, however the pace of contraction seems to be somewhat slower.

US GDP and consumer spending in the first quarter 2009

The GDP (Gross Domestic Product) is a leading economic indicator. US GDP is a measure of the total goods and services output within the US borders. (NB Total here, like everything else, is relative, as we learned a while ago from the more diligent economists in Greece.)

The report from the Commerce Department this morning indicated a 6.1 percent annual rate drop in GDP for the first 3 months of 2009.

On the positive side, consumer spending - which accounts for over two-thirds of the economic activity, rose 2.2 percent.

What, another money blog?

Given the lack of financial knowledge of most, as revealed in various recent surveys both in Canada and in the US (and by the stellar losses in our savings and pension plans), we believe that indeed there is room for another Web site dealing with money matters. While the blog was conceived as just a reference and place to exchange ideas for our own benefit, we decided that it may prove to be of help to others, and that we'll all learn from a more public forum. Financial survival (or, as your case may be, hobby) in today's world requires a certain degree of knowledge. As a rule, the realization that it's all in your own hands comes a bit late (retirement around the corner, permanently let go anyone?)...

There are several personalities, and different levels of experience and interests behind the pages of this blog. We fully embrace capitalism on a good day in the markets, but tend to lean somewhat towards the other side on correction days. But we always enjoy a good discussion, and share a passion for learning.

And, finally, a profound message. William Goetzmann and Geert Rouwenhorst write:
The word "finance" in English comes from Old French, and shares a common root with the word "finish." It was used in the fourteenth century to imply a final settlement, and used most colorfully in Chaucer's Lamentation of Mary Magdelene who proclaims: "dethe is my Finaunce," a metaphor suggesting that life itself is a loan from God and death is the completion, or repayment. This similarity between life's course and a financial contract was apparently more than just a poetic conceit in medieval times.