Thinking about the Canadian Tax-free Savings Account

W- and I picked up a 2008-2009 tax planning guide from the Toronto Public Library, and I was pleasantly surprised to find that the tax-free savings accounts (TFSA) recently introduced by the Canadian government can be used to hold equities which will not incur capital gains tax when sold. Now I’m trying to figure out how I should best manage the $5000 TFSA limit I have this year.

Because I’m young and I have some funds I’m not planning to use for a while, I’m leaning towards considering this as part of my retirement portfolio. It won’t be locked in like my registered retirement savings plan is (RRSP), and it won’t be taxed on withdrawal. Withdrawals from the RRSP are added on top of your income, and capital gains taxes are applied. According to this article on TFSAs and RRSPs, it may make sense to hold income-generating investments in the RRSP (where they won’t get taxed as they grow) and things like equities in the TFSA (where you won’t get capital gains tax on large growth).

Of course, that all depends on whether or not you think equities will stop going down and instead regain some value. Prolonged recessions have happened before. Glass-half-full folks could also see this as a great time to pick up mutual funds or individual stocks at a discount, though. =)

Another alternative is to use it as a high-interest savings account for my emergency fund and short-term goals. $5000 There’s currently no other tax-efficient way to store funds I may need/want to access in a bit.

Or perhaps a mix of both!

Decisions… decisions… Anyway, if you’re going for the high-interest savings account, try PCFinancial For guaranteed investment certificates (GICs), try ING Direct (they’re easy to manage and they have decent rates). If you’re going for a mutual fund, try TD Canada Trust – their index e-series funds have the lowest management expense ratio I’ve come across so far, and they’re fairly easy to manage online. =)

Take this blog post with a grain of salt. I’m not a certified financial planner, just a 25-year-old who likes figuring things out.

UPDATE: PCFinancial offers the Tax Free Savings Account with an interest rate of 3.05% on the entire balance of your account (instead of the tiered system of ING), so it beats ING a little bit when it comes to savings accounts. Although at this point, you’re quibbling over 0.35%, which (given the $5000 contribution room) comes out to less than $20. May not be worth opening another account for over one year, and interest rates tend to fluctuate anyway.

Hooray! Tax-free savings account!

To encourage people to save, the Canadian government created a tax-free savings account. You put after-tax dollars into it, and the interest is tax-free. The contribution limit for this year is $5,000.

PCFinancial and ING Direct are two Canadian banks with great interest rates. Currently, ING Direct (0.27%) is better than PCFinancial’s Interest Plus (1% on 0-$1000, 2.75% on $1000 and up) for amounts less than $53,000, and you probably wouldn’t want to keep that much money in a savings account anyway. PCFinancial does have an anniversary bonus and it’s easier to transfer money back and forth between accounts, and sometimes PCFinancial’s rate is a little bit higher than ING. ING Direct’s GICs seem to be a better deal, though, and they come with more options.

If you do set up an ING Direct account (and deposit at least $100 into it), you can use my referral code (Orange Key: 29083948S1) for a $13 bonus. I’ll get a $13 bonus, too, so everyone’s happy. =)

I’m setting up some transfers. Looking forward to taking advantage of that tax-free deal! Maybe another set of laddered GICs…

The economics of entertaining at home

Last Saturday, we hosted a dinner party at our house. There were eight people, including me and W-. For starters, we served broccoli and cauliflower crudites with blue cheese dip and home-made hummus. For the main course, we served vegetarian chili and chicken curry, accompanied by naan bread and basmati rice. People brought dessert: halva, chocolates, sesame snacks, buns, and all sorts of assorted goodies. The party went from 7:00 to 11:30 or so, and we had tons of fun chatting about storytelling, university advice, and whatever else came to mind. After the party, we had a week of leftovers to feast on. I estimate that we ate just a third of the food prepared.

Ingredients bought for the party: $52.81 total
Home ingredients used: Approximately $10 (one pack of chickpeas, half a pack of black beans, half a pack of red beans, three packs of curry paste, assorted spices)
Estimated cost of party: ~$63 / 3 (as we only ate a third of the food available) = ~$21 total, or ~$3 each

plus the cost of whatever desserts people shared, of which we probably ate a fifth. Maybe a total of $4 each, for the whole meal + desserts?

I don’t think you can find a restaurant in Toronto where people can eat such a spread for $4, or stay for so long and chat with such ease without the waiters trying to drop hints about freeing up tables. ;) Nor could you find a restaurant with such friendly cats, I think – Luke was _such_ a charmer, immediately identifying the cat fans and climbing onto their laps for a good purr.

I traded time for these savings, of course, but not as much time as one might expect. Pre-cooking the beans using a pressure cooker took up most of my Friday evening, which was a good time to relax and unwind. Chopping everything up for all the meals took an hour, and cooking both the chili and the curry took another hour and a half – during which I was learning more about cooking, thinking about what was going on in the week, and planning what I wanted to do next. (And listening to bouncy Japanese pop songs…) Time well spent.

And the conversation and company? Priceless.

If we had more chairs, or found some way to squeeze more people into the house (in an elegant way that doesn’t mean some people are privileged enough to sit at the table while everyone else just stands around ;) ),I can easily scale up. It seems that the time and money I spent on the get-together could scale up to 24 people, and even more if we decided to make it a well-organized pot-luck get-together.

What would this house look like with 24 people in it? Where would people sit? How would we deal with the coats and shoes? Someday I’ll figure that out. =)

Tonight I’m attending a dinner get-together for recent hires in my department. The pre-set menu is $30 per person. Now that I look at that sum, I’m thinking, “I could host a quite a dinner party for that amount!” ;)