Tax Free Saving Account

The budget 2008 has been announced today. The following is the highlights:

- Tax exempt saving fund, up to $5,000 annually. No tax on gain, withdraw anytime without penalty.
- 10.2 Billion to pay down debt.
- Maximum RESP time limit extended to 35 years; contribution period extended by 10 years.
- tax break on capital equipment depreciation extended to 2012
- $500-million for investment in public transit.
- A $2-billion fund for infrastructure investment will be made permanent.
- $250-million over five years to help the automotive industry develop more environmentally friendly vehicles.
- $350-million for a Canada Student Grant Program.
- $90-million for older workers hurt by factory closures.
- $300-million to for nuclear energy.
- $330-million over two years to improve access to safe drinking water for First Nations.
- $400-million to encourage provinces to recruit 2,500 police officers.
- $43 million to Communications Security Establishment
- $75 million to Canada Border Services
- Permanent annual increase in military spending of 2% by 2011
- New organization to administrate EI premium.

As you might have noticed, there is a new account type being introduced today. It is called Tax Free Saving Account(TFSA).

What is TFSA?

It stands for Tax Free Saving Account. According to the budge 2008, Starting in 2009, people 18 and older will be able to put up to $5,000 per year in a Tax-Free Savings Account and rack up investment gains without paying taxes at any time, including withdrawal. Any unused contribution room will be carried forward just like your RRSP room. The $5,000 annual contribution limit will be indexed to inflation in $500 increments. Contributions to a spouse's or common-law partner's TFSA will be allowed, and TFSA assets will be transferable to the TFSA of a spouse or common-law partner upon death

What is the benefit of TFSA?

The major benefit of TFSA is that it allows the money you put into it to grow tax free.

Don't we have RRSP to allow my money grow tax free already? What is the difference between them?

The differences are:

- Although the money in RRSP can be withdrawn anytime before actual retirement, you are subject to withholding tax while doing it; the money in TFSA could be withdrawn anytime without any withholding tax with all the gains being tax exempt.

- When you withdraw your money from your RRSP account, your contribution room is forever lost. Withdrawals from TFSA will create contribution room for future savings.

- The money put into RRSP is tax deductible. In other words, you get tax refund from contribution in RRSP. The money you put into TFSA is not tax deductible. Therefore, you use after-tax dollar to fund your TFSA account.

What could be held inside TFSA?

You can hold many investment vehicles inside your TFSA, such as stocks, bonds, GIC, mutual funds, etc. However, please note that since all the capital gains inside TFSA is tax free, it also means any capital loss inside it cannot be claimed to be offset your other capital gains or carried forward. So please think carefully before holding any stocks inside TFSA. Technically, TFSA works the best for the fixed income investment vehicles, such as GIC and bonds.

What works the best to be held inside TFSA?

Like I just said, it works the best for fixed income investments. However, if you think you are a very good trader, you can try to trade stocks inside TFSA. If you make 10% profit, all 10% will be tax free. Also, I am thinking it might be good to hold some nice US DIVIDEND stocks such as Bank of America. Since under regular non-registered account, any dividend from US Stock will be considered as income and is taxed at the full tax rate. I think it will be beneficial to hold those inside TFSA.

It will be another year from the date we can actually contribute to TFSA. I think it will be an interesting topic in the personal finance blog world.

Save with Great Canadian Rebates

The Great Canadian Rebates is a website that offers Cash Back Rebates on almost every purchase and hundreds of online coupons to merchants who will ship to Canadians. It is a very good webiste to save money. It offers cash rebate from 1%-18% on your purchase from the retailers who are partners with them. This includes Canadian Tire(3.33%), Chapters(3.33%), WestJet(1.33%), DELL(1%), Priceline(2%), etc.

I usually purchase Canadian Tires Gift Card through them at 3.33% using my 1% cash back credit card and then use the gift card to buy gas at the Canadian Tire Gas Bar. This way, I save 4.33% each time I fill up the tank of my car. With the Canadian Tire Money being offered, the reward is even bigger.

Also, I just found out that they offer 2% cash back for purchase from Priceline as well. Now I am kicking myself not using it for the trip to Orlando.Otherwise, we could save even more……

I think I should really check into GreatCanadianRebates before I purchase anything online in the future…….

My power bill just shocks me

I got my power bill for Jan 10-Feb 10 in the mail today. To my surprise, the total amount is a crazy $264 for my two-bedroom apartment. We use electronic baseboard for heating. Considering three people living in the apartment, I think it is an acceptable amount. But still, it was a shock to me at the first sight.

Since I want to get a three-bedroom townhouse/house in the next year or two, I am just wondering how much it usually costs each month to heat up a three-bedroom house. Will it be a lot?

2% Cash Back Credit Card

Most of the credit cards offer the maximum 1% cash back for the purchased made. The highest one I have seen and got is the American Express Gold Credit Card. It was by invitation only before and has just began to accept the application from general public recently. Here is the details:

American Express Gold with 2% Cash Rebate (tiered)

Cash Rebates paid in January (once per year):
$0 - $2,500 = 0.5%
$2,500 - $5,000 = 1.0%
> $5,000 = 2.0% (no need to carry balance to get the 2%)
Added Bonus of 0.5% if you carry balance (so you could get upto 2.5% cash rebates)

Sign up through: 1-800-268-2639.

Credit Card information is not available on the AMEX website

- MINIMUM $30,000 annual income required to apply for this card
- Just remembered, there is also no maximum rebate… the sky’s the limit. i.e. If you spend $200,000, you’ll get $3937.50 back

Cash rewards calculator/comparison:
http://www3.telus.net/CalgaryBen/

Note that since this card is tiered, basically you have to spend more than $6250 per year to get better cash back than the Citi Enrich Card.

I applied for this card a month ago and now just wish more places will accept American Express.

Why the real estates are cheaper in the states?

I love watching the show "My First Home" on TLC on Saturdays and Sundays. It is fun to watch people hunting for their first home, going through the mortgage application process, and dealing with all the unexpected crises along the way. I plan to buy a house in the next one or two years. Watching the show is also very beneficial to me when I begin to start the house hunting.

However, I did notice something. It seems to me that the housing price in the States is so much cheaper than in Canada. For example, in Las Vegas, you can get a two bedroom detached house with garage for not more than $180,000. In Orlando, $260,000 for a four bedrooms house. In Texas, the price tag is even smaller. I don't think you can drop less than $300,000 for a detached house in any of the three big cities in Canada.

Why it is that way? I don't think those American cities have less population than Canadian ones. And the housing demand is probably also higher there? Maybe it is due to lower cost of the materials? But it should not be that significant, shouldn't it?

Or maybe I did not see the big picture. There are some places in the States with crazy housing price(Like NY?).

CanadianTire Funny Money

If you live in Canada, I am sure many of us have been shopping at CanadianTire and know about CanadianTire Money. Typically, if you buy something at CanadianTire, they will give you certain amount of CanadianTire money as a coupon (at least I think it is a coupon)that you can use towards your future purchase at the store.

But not until today, after I watched the video from CBC Marketplace, I found out that if you want to return something you bought at CanadianTire, you need to return the CanadianTire Money that were given to you. Otherwise, they will simply deduct the amount from the refund you will get from the store.

For example, you bought a toaster for $10 at CanadianTire and got $1 CanadianTire Money. Later, if you want to return that toaster, you need to return the $1 CanadianTire Money as well. What about you lost that $1 funny Money? Too bad, they will only give you $9 back. So CanadianTire is turning their coupon into a legal tender. Is CanadianTire Money a real money? Of course not, you cannot use it at any other stores than CanadianTire. It is simply a marketing method to encourage consumers to buy more from CanadianTire. It has no difference from Shopper’s Points, Air Miles, etc. By doing this, CanadianTire is actually making a force purchase of nothing. They assume that the consumer will use that $1 funny money to purchase something at the store.

In the video, CanadianTire is claiming that they are printing the CanadianTire Money using the same process the legal tender gets printed. But, hey, who cares? We, consumer, did not ask you to do it that way. Just print it the way other stores print their coupons. I am sure all consumers will be equally happy.

In the video, CBC also did a hypothetical calculations. If 10% of the consumers forget to bring back the CanadianTire Money when they return the products, the CanadianTire will ring in $155,000 REAL money each year. If 50%, $775,000; At 90%, the number goes up to 1.4 million REAL money per year!

So don’t lose your CanadianTire Funny Money, it could be REAL money, at least CanadianTire thinks so.

SavingSmart with Great Canadian Rebates

Great Canadian Rebates is currently offering a rebate of $10.50 to join the MemberWorks-SavingSmart membership.

So what is MemberWorks-SavingSmart?

SavingSmart is a shopping club that provides a 5% discount on gift cards/certificates for a variety of national retailers and restaurants, as well as exclusive members-only online savings. Each time when you purchase gift cards from SavingSmart, it will automatically give you the discount.

What retailers are included in MemberWorks-SavingSmart?

You can purchase followin retailers’ gift cards from SavingSmart:

American Eagle Outfitters, Au Vieux, Duluth,Birks, BLOCKBUSTER, Canadian Tire, Casey’s, Certigard Labour Discount, Certigard Maintenance Service Package, Chapters, Cineplex, Coles, Crabtree & Evelyn, Cyberflowers.ca, Designer Depot, East Side Mario’s, eBags.com, Fruits & Passion, Golda’s Kitchen, Home Outfitters, HomeSense, Indigo, Linens ‘n Things, Olive Garden, Petro-Canada Preferred Price Card, Red Lobster, SportChek, Sports Experts, The Bay, The Keg Steakhouse & Bar, TipTop Tailors, VistaPrint, Watch Station, Winners, Zellers.

Among these retailer, what I really like the most is the CanadianTire gift card, as I can use it at the CanadianTire Gas bar. If I am buying the gift cards using my 2% Amex credit cards, I am saving 7% of gas each time. That is just sweet. Also, Zellers is a good one. If you combine the gift card discount with SPC card (SPC offer 10% off for regular and sales items at Zellers), the rebate is even bigger, 17% off!!!

Is there any limit of how many gift cards I can purchase each time?

No, There is NO limit to how many gift cards you can purchase per day or per retailers.

How much does it cost to join SavingSmart?

There is $9.95 monthly membership for SavingSmart. Currently, it is offering 15-day FREE trial. And Great Canadian Rebates is giving $10.50 when you join. So, you have 45 days FREE trial. Since there is no limit of how many gift cards you can purchase each time, you can just grab all the cards you want and then cancel the membership. However, if you buy regularly from the retailers above, I do recommend to keep the memebership because after you cancel, you cannot join again.

Have you joined before?

Yes, I have joined the same kind of membership before. At that time, it was 20% off the face value of the gift cards with a limit of 5 cards each month for each retailer. But that kind of membership is nowhere to find now.

How do I join?

If you decided to join SavingSmart, you need to sign up for Great Canadian Rebates first. Then, do a search on SavingSmart. Click on the link to the SavingSmart website and sign up from there. It is currently the only way to join SavingSmart. There is a bonus of $25 Petro-Canada Preferred Price Card being offered if you join now.

So, have fun shopping