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Tax-free, sort of

My report suggesting a tax-free savings plan. Will I never learn?

Starting now we can all put $5,000 a year into a new savings vehicle in which growth is tax-free. It’s called the Tax Free Savings Account and you may remember that it was the piece de resistance of the last Harper budget.

Is this a good deal? Should you do it?

Well, before I answer those questions, I’ll remind you that when I was a newly-elected Conservative MP I embarked on a cross-Canada project to hand Jim Flaherty good ideas for his first budget. When I finished (April, 2006), I gave him a fat report to which more than 10,000 Canadians had contributed – by email, in town halls, on this blog, by letter and in response to my media articles. It was the widest budget consultation in national history.

Sigh. This was back when I still believed the myth that the ‘new’ Conservatives were most in tune with grassroots sentiments. Those illusions were quickly thrown under the caucus bus as that report caused an internal party revolt that almost had me ejected a mere three months after being elected. (I would last another seven.)

Well, one of my star recommendations, along with pension-splitting for retired couples, was a tax-free savings plan. Ironically, I’d say these are the two best initiatives of the Harper years to date. (I’m still waiting for my Senate seat as thanks…)

One wrinkle, though: I’d suggested the after-tax plan be restricted to saving for retirement, whereas Flaherty has turned it into a rainy day, shiny-new-plasma-TV kind of thing.

So, you get to put five grand a year in, and if you miss a year you can make it up later. The money can be invested in GICs, stocks, bonds, mutual funds or anything else that goes into an RRSP. The interest or capital gains you earn stay in the account and are not taxed, and you can withdraw money at any time and spend it, without having to add the gain to your taxable income.

Unlike an RRSP, however, you don`t get to deduct the contribution from your income for tax purposes. But also unlike an RRSP, when you withdraw cash it is not counted as income, so it won’t affect your eligibility to collect old people’s pogey.

So, a good thing?

For some people yes, for others no. First, you must have money to invest which rules out a lot of Canadians, since the current national savings rate is zero. Most families are so entangled in debt that extra cash flow is just a dream. Second, the money you invest in a TFSA is in after-tax dollars since you cannot get a tax break for doing so.

Third, you are immediately better off (at least most of us) making an RRSP contribution, since every dollar nets you a tax break of up to 50%. So, a family making $100,000 putting $13,000 into a retirement plan will get a tax reduction of $6,500, whereas if husband and wife put $10,000 together into a TFSA, they’d save nothing in taxes.

But, of course, there are benefits. For example, if you’re a rich person who’s maxed out on RRSP contributions, this gives you the ability to shift $5,000 a year in assets from a taxable non-registered account into a tax-free account, so you can enjoy dividend income or capital gains, for example, without paying Ottawa.

It`s also good for wealthy retirees or folks old enough that they must cash in RRIFs, since they get a brand new tax shelter for their investments worth $20,000 every 48 months. It’s good for investors with money in foreign securities which pay dividends, since a TFSP will shield them from tax whereas an RRSP will not. It’s good for couples looking for a way to split income, since a husband can dump money into a spouse’s plan, for example, and the interest or capital gains earned will not be attributed back to him.

It’s good for financial planners, for all of the above reasons. It will be good for the beneficiaries of future dead people since TFSP money will not be taxable in an estate, but go straight to the kids or the dog.

But for most people, the plan is actually dangerous. If the buzz surrounding it convinces families of modest means to pass up on this year’s RRSP contribution and open a tax-free savings plan instead, this will penalize them by needlessly increasing their tax burden. Worse, if anyone with debt – a credit card balance at 18%, or an amortized mortgage – goes for the shiny new thing instead of whacking their loan, they will be worse off in these deflationary times.

Besides, with savings paying basically nothing, with stocks and mutual funds in the tank, what’s the attraction? How can saving money in a tax-free account when there is no growth to tax be better than attacking debt which is payable in after-tax dollars?

This is precisely why I told Jimbo the thing needed to be restricted to retirement savings, like Roth IRAs in the States. Don’t try to fool folks who don’t quite understand, I said.

But he didn’t understand.

Books by Garth Turner


Panicked Boomers. Galloping rates. Troubled houses.

And a tax attack.
Welcome to the next five years, on the Money Road.

Garth Turner’s new book is a roadmap through chaos.

Global financial collapse maybe be so 2009, but the next five years will be the ones that impact Canadians’ daily lives the most, says bestselling financial author Garth Turner in his latest book, Money Road.
The reasons are compelling and inescapable. Among them:

  • Nine million Boomers – generally house-rich and cash-poor – start turning 65 in 2011. The consequences for the economy and real estate market will be profound.
  • After more than a year of emergency interest rates, the cost of money is expected to start rising this summer and continue for several years, bedevilling those who have to renew mortgages.
  • Taxes are about to careen higher, starting with the HST hitting 16 million in Ontario and BC. Governments at all levels are drowning in debt with only one way to change that.
  • Canada’s housing bubble, which goosed prices 20% in the midst of recession, will not withstand a tepid economy, likely changes in minimum down payments or higher rates – especially in Vancouver and Toronto.
  • The country’s headed for a retirement crisis, as 70% of us have no corporate pensions, only half have RRSPs and a majority no long-term savings.
  • And after an ill-advised torrent of spending in 2009, Canadian families are tapped out with household debt at record levels and unemployment stubbornly high. This bodes poorly for an economy now 60% dependent on consumers.

But despite the problems, which will lead to volatile stock markets and confused investors, Turner insists there’s a positive path ahead for those who understand what the next five years will bring. Forget lucking out on gold bars or bungalows, he says, because these asset bubbles will end badly.

Instead, the best thing investors can do is understand that markets (stocks, houses, bonds, metals) will be dominated by waves of fear and greed, use the tools of technical analysis to plot this, and ensure they have balanced portfolios while practicing aggressive tax avoidance.

This means

  • Popular mutual funds that pace market indices are dangerous.
  • Anyone using a tax-free savings account for saving is a loser.
  • Scores of recent homebuyers could soon sink into negative equity.
  • And pensionless Boomers have no option but to bail out of houses and aggressively invest – even at age 60.

Turner’s book, ‘Money Road’ will be released on February 1, available across Canada at Chapters and Indigo stores, and online at

Garth Turner

He is a financial counsellor, author, lecturer, former Canadian Member of Parliament, federal cabinet minister, broadcaster and entrepreneur.

Turner has written 14 best-selling financial books, run Canada’s tax system, educated audiences from coast to coast and continues to be the country’s leading independent voice on economic, real estate and financial issues.

He writes Canada’s premier daily personal finance blog and is a respected analyst on the residential real estate market, fiscal, monetary and taxation policy.

Recent books include ‘Sheeple’ (2009), ‘After the Crash’ (2009) and ‘Greater Fool’ (2008).


Garth Turner’s ‘to do’ list for surviving the financial end times

By Gary Lamphier, Edmonton Journal

I’m no expert on the human psyche, but after covering business and economic stories for 30 years, I know one thing.

There’s a seemingly endless appetite for books that predict either looming economic disaster, or something approaching nirvana, where stock markets soar to the heavens, and the work week shrinks to a few hours.

From author Ravi Batra’s The Great Depression of 1990, published in the late 1980s, to Dow 36,000, written by authors James Glassman and Kevin Hassett in 1999, the book shelves are lined with such tomes.

Virtually all have been dead wrong — some hilariously so — but that doesn’t stop such books from appearing, year after year.

Perhaps it’s a primal thing. At some level, we humans must have a deep-seated need to work ourselves into a state of intense dread about the future, or alternatively, profound exhilaration about the glorious prospects ahead. Depending on our mood, of course.

These days, with the world in the vise grip of the worst recession since, well, the Great Depression, our collective mood grows darker by the hour. So you can expect a steady stream of books predicting a bleak world ahead, as layoffs mount and the global economy sinks.

Veteran author Garth Turner’s After The Crash is one such effort, and it won’t fail to disappoint those who see the economic storm of 2008 as merely the first chapter in what could become a decade of unprecedented pain and misery. The political maverick, two-time federal MP, personal-finance specialist, prolific writer and wealthy entrepreneur spares no detail in depicting a grim future of depopulated suburbs, abandoned big-box stores, empty universities and relentlessly plunging home values.

To be fair, Turner doesn’t exactly predict all this will occur.

He does leave himself an out: “Hopefully the post-bubble years will bring merely a bad recession we snap out of by 2011 or 2012,” he says. “But there’s no guarantee.”

With that tiny caveat, however, Turner really gets rolling. He says Canadians should get used to seeing their net worth fall, their house prices shrink, their stock portfolios sag, and their jobs disappear. And hey, that’s the good news, relatively speaking.

If the economy really goes to hell, Turner figures we could all be going back to something akin to the 15th century. Among other things, he sees the likelihood of local food and gasoline shortages, mass migrations from the cities and suburbs as urban crime soars, escalating firewood prices, and regular power blackouts.

“While some of the above may sound extreme, enough will come to pass to make it clear we’re in changed times,” he says. “The decision each person must make is how to react, and to what degree.”

Turner’s book is full of helpful “to do” lists and practical guides offering advice on what items will be needed to survive the possible breakdown of civil society. His worst-case scenario — dubbed

the “This will get bad, I’m outta here” list — provides no fewer than 41 separate tips.

Give the man this: He’s thorough.

Turner says every home should have a “Bad Day Box” containing vital survival items (can opener, personal hygiene supplies, matches, cash, rain gear, etc.).

His so-called “Go-bag” of essential items reads like something out of a military manual. He even devises a “Go-bag” for each family pet, complete with a copy of their vaccination history.

Besides the obvious things — stockpiling water, food, batteries, vegetable seeds, soap, medical prescriptions and toilet paper, buying a generator,

installing a wood stove and loading up on gasoline — Turner also suggests getting basic fishing tackle, installing a clothesline, and yup, even buying a weapon.

“Are some of the above suggestions extreme? Most people will readily answer that they are. Some will not,” he says.

“Some folks will wonder how any of this factors into a financial book. Others will quickly see the connection in a time when our collective pursuit of consumerism and debt has led into debt and danger.

“After the crash we know much more about the fragility of our system and how it broke down. We hope for better days. But hope is not action. That’s for you. Take care,” he says.

As for me, I’m not sure what the

future will bring. I’ve never seen such uncertainty in my entire life. Like everyone else, we’ve been hammered by the downturn in the housing market, and the stock market.

But let me also say this. The future is never clear — even when you think it is.

Back in 1983, when my wife and I bought our first home in Toronto, the economy was a mess, interest rates were high, I had no full-time job, we were expecting our first child, and our annual household income was less than $25,000.

At the time, I was a freelance writer. I was so poor I had to write my stories on a rented typewriter. All of our meagre income was directed toward paying our $850 monthly mortgage fees.

Yet somehow, we managed to do it. Even after my wife gave birth, and stopped working. Eventually I found a full-time job, and my salary soared to an astounding $23,000 per year. Life went on, and we had a second child.

Six years after we bought that house, we moved west, and sold it for nearly three times the original purchase price. If we hadn’t made that leap of faith in 1983, when all was dark, and the world was terribly uncertain, we would have missed a golden opportunity.

That’s what exists today. On the one hand, uncertainty. And on the other hand, opportunity. You can choose to be fearful, or you can gather your courage, and move forward. As Turner says, that’s for you to decide.

He is the financial touchstone

of his generation.

saint-john.jpg To contact Garth, or book him for a speaking event, go here.



Garth Turner’s latest book, the 2008 best-seller,
‘Greater Fool: The Troubled Future of Real Estate’
Published by Key Porter Books, Toronto

Recent reviews:

Garth Turner has an interesting post up on the blog for his book, Greater Fool: The Troubled Future of Real Estate. For those who are unfamiliar with the book, in a nutshell it discusses the subprime crisis in The U.S. and explains why Canada is in line for a similar real estate bust, albeit for different reasons than in the United States. While this may seem obvious now, the book was published back in March, when many real estate experts were still saying that Canada would be immune to the type of crash than our American neighbours have seen. Since that time, real estate prices in most parts of the country have declined significantly, and as such Garth’s book has proven remarkably prescient.

In his blog post, Garth talks about what we can expect to see in the next six months. Some of his points include:

* Eastern cities, including Toronto, will have markets fall another 10%, for a peak-to-Spring decline of 25%.
* Albertan cities will decline another 10% as well, for a rout of 30%.
* Vancouver will crash 20%, taking the average price down 25%, on its way to 40% prior to the 2010 games.
* Montreal and Ottawa will decline about 12% by Spring from the peak, while Maritime cities will escape absolute reductions, and merely flat-line.

Given Turner’s prior success in prediting how things would play out in Canada’s real estate market, it seems wise to heed his advice. Obviously, it’s not what you want to hear if you are planning to sell your home. On the bright side, for those looking to buy a home, things are becoming more affordable.

Realtors and their professional associations are, understably, the group that is most upset with current trends. An article in the Toronto Star provides a couple of revelatory quotes:

“Just stop reading the newspaper and watching the news,” Polzler said to enthusiastic applause.

“The need is paramount now to accentuate the positive,” said Gary Hockey, president of Coldwell Banker Canada. “We have to create some positive spin so we don’t get dragged down to the doldrums.”

It’s obvious that they are running scared, with good reason. It seems a bit disingenuous to say that all that needs to be done is to create some positive spin. Over the past half-decade, realtors managed to take 0-down, 40 year mortgages and spin them into a real estate bubble. While it is not surprising that realtors want to keep attitudes toward real estate purchases positive, it seems a bit reckless to suggest that realtors and others ignore the news. Denying reality isn’t going to make things better. (Review posted on Oct 28, 2008).

Canada not immune from subprime crisis: Garth Turner
By Jonathan Chevreau, Financial Post
The U.S. real estate crash is about to sweep into Canada, says Garth Turner in a just-published book entitled “Greater Fool.” Turner – entrepreneur and real estate investor – says the problems underlying the American subprime crisis “go far beyond mortgage products and also reach into Toronto, Calgary and Vancouver.”

In a nutshell, Turner urges his Canadian readers to sell their real estate if it makes up much more than a third of total family net worth and consider renting until the storm passes. He suggests baby boomers sell their “McMansions” while they can still get decent prices and find more reasonably priced modest homes located near hospitals, public transit and other amenities.

The book is timely enough, considering it includes such recent news reports as the line-ups for downtown Toronto condos: line-ups he says were largely fabricated for the benefit of gullible media types. “When bungalows in Vancouver cost $900,000 and resale homes with no parking in midtown Toronto are $1 million, it’s only forty-year mortgages and an embracing of debt that sustain the unsustainable,” Turner writes in the Key Porter published book, subtitled The Troubled Future of Real Estate.

He warns that overextended young Canadian couples are buying into several real estate myths, “egged on by real estate marketing machines and reassured by economists paid by our largest lenders.” They “cling to the absurd belief that paying too much for something is okay” and that “there will always be a greater fool willing to pay more.”

Turner does not believe the American housing crisis was caused by subprime mortgages extended to otherwise unworthy borrowers. “That was but a symptom” of the real disease, which was the rush into real estate that followed the flood of cheap money Alan Greenspan unleashed following the shock of 9/11.

With 5% down mortgages and the new 40-year amortization schedules, Canadian homeowners are just as overextended as their American counterparts, Turner argues. He also notes that subprime [or near-prime] loans are also available in Canada through firms like Toronto’s Exceed Mortgage.

“The inevitable conclusion is that the current Canadian real estate market is floating on a sea of unrepayable, and perhaps unserviceable, debt.”

Among the myths Turner identifies:

1.) Unlike stocks, real estate is a riskless investment.
2.) Houses [always] appreciate
3.) Canadian lenders are more conservative [than U.S. subprime lenders]
4.) Industry experts are worth heeding
5.) You need some place to live anyway

6.) A house is a great investment
7.) Better to be an owner than renter
8.) Rising markets are normal
9.) Real estate profits are tax-free
10.) Canada is different

And here are his recommendations (or what he terms “strategies.”)

For Homeowners:
• Wait and see what happens
• Hang on and hope for the best – a downturn of just a few years

• Liquidate now, invest the proceeds and rent
• Sell with a long close, hope the contract is honored, then buy back into a declining, buyer’s market
• Ignore it all
• Diversify, and promise you’ll never be so foolish again.

For Homebuyers:
Turner suggests buying real estate with a future and that empty-nester boomer couples will be downsizing into bungalows, townhomes and condos of 750 to 1500 square feet. Access to urban services will be important. In other words, “buy real estate with a fighting chance of retaining its resale value.”

And for those thinking of buying a second home, Turner’s one-word recommendation is “Don’t.” Those who want cabins on a lake or farms with a pond should rent instead, because overextended investors will be dumping their country retreats before their urban principal residences.

And finally – here I’m talking to anyone who viewed the recent video blog interview with Mark Dziedzic – Turner warns Canadians not to get sucked into buying “bargain” foreclosure properties in the United States.

Turner closes with the disclaimer that “my views may be prescient or be proven wrong. Regardless, there will be a greater fool.”

Well, that’s covering all the bases.

And what do I think? Turner makes some good points and he’s certainly been around the real estate block a few times. I wouldn’t disregard his points out of hand. Personally, I’ll be hanging on to our own Toronto residence, but then it already qualifies as a modest home near public services, it’s mortgage free and does not exceed a third of our net worth. Nor do we own a second property.

However, if I were among the many people tuning into TV shows like “Flip this house” and thinking of speculating on real estate, I’d certainly want to consider Turner’s arguments before borrowing money in the hope of instant riches at this stage of the game. It’s one thing to have a paid-for home you live in and quite another to be speculating on real estate on the hope prices will always rise and a greater fool will arrive to save you from your greed and foolishness.

Much of Turner’s criticisms are directed at people who have saved nothing for retirement or even for emergencies and who live beyond their means, buying more house than they need with such atrocities as 40-year amortizations. I agree with Turner that if the only way you can afford a home is through a 40-year am, then you’d be better off renting and waiting until you do have enough money saved to buy a more modest home. Thankfully, the new Tax-Free Savings Accounts (TFSAs) Canadians will have by 2009 will help young Canadians take such a prudent approach to home ownership.

Whether the real estate market cracks before then remains to be seen.

Garth Turner – Biographical Notes

From the eye-opening best seller “2015” to the then-controversial, “The Strategy”, through to his annual guides and collected wisdom, and the far-reaching and prescient “2020”, Garth Turner has delivered to Canadians exactly what they need, exactly when they need it.

His populist, commonsense, sometimes kick-in-the-pants style of writing distills and explains macroeconomics and global finances, then puts readers right in the middle of it all, concluding with real hope – and real strategies – for their financial security.

Now is clearly the time for the next Garth Turner book, ‘Greater Fool.’. Big picture. Forward thinking. Answers for volatile times.

With household debt levels at historic highs, with almost 90% of all family assets unwisely in real estate, with inflation and rates rising, the Canadian savings rate at zero and the American economy teetering, people need guidance, perspective and help, as well as a warning about what is coming.

Most Canadians know Garth Turner. They have followed his multifaceted career as a communicator, author, lecturer, columnist, TV personality, entrepreneur, MP and populist.

They know he’s an agent of change whose words on the future, and insights on today, are as unique, unpredictable and compelling as the man himself.

Garth Turner’s career expertise lies in business, personal finance, real estate and taxation. He’s authored many best-selling books, lectured extensively across the country, hosted Canada’s most-watched business television show, and written a syndicated newspaper column carried in scores of cities.

Garth’s volunteer work has included serving as a National Director of the Sierra Legal Defence Fund, which fights to uphold environmental legislation, and as a national spokesperson for the Alzheimer Society of Canada.

His entrepreneurial spirit has led him to start many businesses, from the country’s largest independent producer of network television programming, to the restoration of heritage buildings and in the hospitality industry, creating a host of jobs in our vibrant small business sector.

garth-and-bike.JPG Garth Turner has served twice as a Member of Parliament in Canada’s House of Commons. He also is a member of Canada’s Privy Council. He was educated at the University of Toronto Schools, the University of Toronto, and the University of Western Ontario. He is married to Dorothy, and shares an emotional attachment with his motorcycle.

War on the family

national-post.JPG Book Review
Canada not immune from subprime crisis: Garth Turner


The Harper government has vowed to do everything in its power to kill a new tax break for middle class families.

The finance minister’s MP assistant said Friday that Conservatives will lobby the Senate they always ridicule to strike down the bill which the House of Commons just passed. The finance department has declared war on the legislation which will let parents deduct from income the savings they put aside for their kid’s education. A government spokesperson told media there is a ‘plan B’ to destroy this gift to families if they cannot get the senators to do it for them. Jim Flaherty said, “This is the kind of thing Liberals bring forward. They want to drive us back into deficits and we’re not going to go back into deficits.” And the Harperites trotted out third-party critics on Friday to saturate the media with a message of hate and astonishment.

finn-poschman-cd-howe.JPG Typical was Finn Poschmann, of the CD Howe Institute – himself an architect of the government’s new, now competing, after-tax savings plan – who trashed the RESP legislation on TV. It’s outrageous, he said, that MPs should be writing policy dealing with taxes and finances, since that’s the domain of the government.

Memo to Finn: This is a democracy. The people decide what’s best for the people. MPs represent the people. MPs passed this. Suck it up, sweetheart.

The outrage now oozing from the PMO and Jim Flaherty’s skyscraper in downtown Ottawa is palpable. I have no doubt the Liberal MP who shepherded this through the Commons, Dan McTeague, is wondering if his real battle has just begun. And I have every expectation now that the Harper government will throw this back in the face of the Commons somehow as yet another confidence measure.

Why the incredible opposition to a measure that will help so many families? After all, it makes savings for higher education far easier. It means fewer university grads will leave school with a crushing personal debt. It will increase the cash flow for parents able to save. It will open up innovative ways money can be sheltered, and augmented between RRSPs and RESPs. And, mostly, it beats the crap out of the tax-free savings plan as a financial tool. (Remember, contributions to the TFSA are not deductible from taxable income.)

The government is claiming this will cost a ton of money in lost revenues, and perhaps topple the federal budget back into deficit. That’s rich for a gang that has jacked federal spending to the highest level in history; which accelerated the second GST cut for political reasons, ripping another $6 billion a year out of the treasury; which spent $5 billion on three new heavy-lift aircraft; which gave Quebec a 34% increase in transfer payments; and cost its own treasury almost $1 billion a year by destroying the income trust sector. Oh yeah, and each artillery shell our guys light up in Afghanistan is worth $150,000, or the entire post-graduate debt of five students.

Face it: Harper hates this because (a) it’s a Liberal idea, (b) it actually helps people and they might remember, (c) it makes their own savings plan DOA, and (d) it challenges the man’s megalomaniacal control fetish. And did I mention it’s a Liberal idea?

In reality, this is the first major piece of positive personal financial news Canadian families have had in decades. In the scheme of things, it is affordable. In a knowledge-based world of value-added jobs, it’s essential national policy.

And Parliament passed it into law. The people spoke.

Will Stephen Harper now deny them? Let’s watch.