TFSA qualified investments
Many people have paid a lot of fines because they didn’t follow the rules with respect to what is a qualified investment and we’re going to cover what you can and can’t put in your TFSA.
If this is something that’s on top of mind for you and you’re wondering what you can put in your TFSA and you’re not sure exactly how this works, then go to speaktorob.com.
Let’s look at what can and can’t be in this specific account.
First off, when the TFSA name came out way back in 2009, they named it the Tax-Free Savings Account. I personally would have preferred the Tax-Free Investment Account because what ended up happening is a lot of Canadians thought this was a savings account, similar to a bank savings account.
They would put their cash, their hard-earned cash in a savings account and not in an investment account. Historically, investments have performed dramatically better than cash in a cash savings account. And yet all these Canadians, we’re losing potential tax-free gains on the TFSA over time.
As you guys know, in the TFSA, all the growth, all the dividends, all the income and everything that happens in the TFSA is completely tax-free for life. It’s liquid. You could pull it out and regain the contribution from next year.
Here’s what you can put in your TFSA account:
- Straight cash
- Term Deposits
The above-mentioned investments can be done through a bank or credit union. Those will be lower earning investments. You could also put any securities that are listed on an exchange as well as shares of corporations:
- Units of exchange traded funds.
- Real estate investment trusts – REITs.
- Mutual funds
- Segregated funds.
All of those are potential options.
You can do:
- Canada savings bonds
- Provincial bonds
- Corporate bonds
- Debt obligations of a corporation that trades on a designated stock exchange.
- Debt obligations of anything that has an investment grade rating.
- Insured mortgages.
Basically, think of any investment that you know of that’s publicly traded and that’s easily accessible. Most investments that the majority people are commonly aware of can be put in a TFSA.
Now, why would you rather have shares of a company versus a term deposit?
Let’s say you have a growth tech stock like a Google or something similar in your portfolio and it grows. Let’s say it grows at 10 or 15 or 20% per year, all of that growth is tax free and you’re saving that tax on that growth.
You’re saving quite a bit of taxes versus the interest or the income on a 2% GIC. That’s something to consider.
Perhaps, you’re an owner of a company that is also a private corporation. You want shares from the private corporation in your TFSA because you want to put in a deflated value and maybe you want to say the shares are worth five bucks, but in your mind they’re actually worth 20. You might even know the shares are going to be sold at a future date for 50 bucks and you’re trying to make a huge windfall in your TFSA.
I would caution you!
You should speak to an expert about that. Either your account and/or a portfolio manager because CRA is likely to crack down on that and they’re likely not going to allow it. The fines are intense. They’re severe if you put a non-qualified investment in the TFSA.
The type of shares that I would watch if I were you are from private corporations. If you own a private corporation, private options that you own and in trust or even just straight up private options, those can certainly trigger alarm bells because they’re technically not qualified.
You should get an opinion from either your advisor or from your tax accountant on that.
They could be a little complicated and we certainly don’t want you to be caught offside with a non-qualified TFSA and end up losing all the tax-free growth.
You would end up paying the tax on all that and the penalties, so we don’t want that to happen.
To reiterate, the following investments can go in a TFSA since they are qualified investments for that account: securities, bonds, stocks, preferred shares, debentures, mutual fund, seg funds, GIC and term deposits.
The TFSA is an extremely useful tool for EVERY investor!
Folks, it’s very important that you have the investments that are either going to grow the most in your portfolio or the ones with the highest taxable impact on your portfolio.
Ideally, in 20, 30, 40 years, we all have 500K to a $1 million dollar TFSA. That’s the goal. We want to build in the TFSA over time to get that tax-free income for life.
If you seek advice on your TFSA, please go to speaktorob.com, we’d love to chat about that more with you.
📞 Call us directly at 204-259-2859 to schedule your FREE consultation