Federal Budget Offers Tax Free Savings Account

Tuesday, February 26, 2008 01:03 PM

Federal Finance Minister Jim Flaherty has presented his budget.

This is his third budget and the treat that can be enjoyed by all Canadians is the creastion of a tax free savings account.

Flaherty recognized challenges from abroad and the economy in the United States. He said there is volatility in global financial markets, and some sectors in the Canadian economy are struggling and he predicts the economy will slow over the next two years.

For the most part, the budget today was a rehash of action the government has taken over the past year, including a reminder of the tax breaks that will be realized when taxes are filed this year and the reduction of the gst.

Flaherty says there has to be some incentive to get people to save “Unfortunately, for too long, the government often punished people for doing the right thing”. Flaherty says people will no longer be taxed on the interest they make on this special savings account. “This flexible registered generous purpose account will allow Canadians to watch their savings grow, tax free." Canadians can contribute up to $5 thousand per year, and there will be no restrictions on how much, or when they can withdraw. “Like an RRSP, the tax free saving account is for everything else in your life”.

Seniors: There are some breaks for seniors, increasing the Guaranteed Income Supplement exemption to $3500.

Business: The Government has abolished the federal capital tax and provided a financial incentive for Provinces to eliminate theirs as well.

Manufacturers: an extension of the capital cost allowance. That will give the manufacturing sector an additional million dollars in tax relief.

Automotive Industry : $250 million dollars for an automotive innovation fund to fuel the development of fuel efficient and “green” vehicles.

Another $440 million dollars will be put in research and innovation, including $80 million a year for university research.

Resource Communities : The Community Development Trust ( $1 billion dollars) also additional support for older workers who have been laid off, through to 2012, a new $90 million dollar investment for workers aged 55 to 64.

Flaherty announced the creation of the Employment Insurance Financing Board which will be a new Crown Corporation that will set the EI rate and maintain a $2 billion dollar reserve.

Homelessness: There will be five pilot projects across the country to address homelessness, $110 million will be split among projects in Vancouver, Winnipeg, Toronto, Montreal and Moncton.

Infrastructure: $33 billion over 7 years for roads, bridges, and a new Crown Corporation called PPP Inc, which through Public Private Partnerships will leverage more dollars.

Federal gas tax funding will be delivered to the municipalities forever, instead of just till 2014. Communities can plan their infrastructure repairs relying on this funding, forever.

Education: There will be a new Canada Student Grant program. $350 million dollars will be dedicated to this program in 2009/2010.

A new Scholarship has been announced, with $100 million dollars to attract the best doctorate students in Canada and from around the world. There will also be $21 million set aside for research chairs in the environment natural resources and energy, health, information and communication technologies.

Aboriginals : $70 million dollars over the next two years for aboriginal economic development and there will be $70 million for First Nations education.

Immigration There will be new funding to support immigration initiatives over the next two years

Environment: $200 million dollars for carbon capture and storage projects. Another $21 million for resources to better enforce the laws.

Crime: $400 million dollars to hire more police officers over the next five years.

Canadian Forces: Stable, predictable funding, with annual increases in defense spending of 2% in 2011/2012.

The House will vote on the Budget on March 5th.

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Posted on Tuesday, February 26, 2008 01:03 PM in News by 250 News

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Comments

Posted by: The_grandinquisitor on February 26 2008 4:38 PM

Flaherty says there has to be some incentive to get people to save �Unfortunately, for too long, the government often punished people for doing the right thing�. Flaherty says people will no longer be taxed on the interest they make on this special savings account. �This flexible registered generous purpose account will allow Canadians to watch their savings grow, tax free." Canadians can contribute up to $5 thousand per year, and there will be no restrictions on how much, or when they can withdraw. �Like an RRSP, the tax free saving account is for everything else in your life�.

Will canadians be taxed on their withdrawls like they are with rrsp withdrawls? With low interest rates in most savings accounts and things like Savings Bonds, there is no real incentive to use them. I'd rather make a lot of money on an investment and pay some tax, as opposed to trying to save some money with no taxes on the interest. The only people this would benefit are the rich - who can put a substantial amount of money into a savings account and not miss it. Again, the Government is catering to the rich and ignoring the middle class working joe.

Posted by: Belvedere on February 26 2008 4:42 PM

The CBC reported that there will be no taxation on withdrawals.

Posted by: Harbinger on February 26 2008 7:23 PM

What fun! Saving after tax dollars with no penalties. (again)

Posted by: socredible on February 26 2008 8:00 PM

You 'save' dollars you have earned that have already appeared in the 'costs', and ultimately will be impressed into the final 'price' of some product.

Assuming there's now more incentive to 'save' than there is to spend from existing savings, then the only way that product can sell is for someone to 'borrow' an amount equal to what you 'save'.

But the Bank doesn't lend your savings when someone borrows, since when you deposit them into your account they are its 'liabilities'. What it owes you. And also its third-party deposits, ('money' you have put in the bank), form part of its 'reserves'. So the Bank then gets to create new credit, up to at least 10 times the amount of your 'savings', and 'lend' it out.

Who is the REAL beneficiary of Mr. Flaherty's latest?

Posted by: Eagleone on February 26 2008 8:54 PM

Your right Socred it is a ploy to help liquidate the banks fractional reserves, and not a tax relief policy for Canadians trying to keep some of their paycheck. Its all optics IMO without any real tax relief.

To save that $5000 you still have to pay taxes on those earnings before you can save the money and then if your savings account gets 2.85% going rate for a savings account you will make $142.5 dollars interest per year giving you a tax savings of about the equivilent of a case of beer per year.

The banks on the otherhand through fractional reserves will be able to create $100,000 of new money based on your $5000 deposit, and the banks will make likely 8% on that $100,000 increasing their profits by $8000 for your $5000 deposit, which in turn earns you a case of beer a year in tax savings on your $142 interest earned. Its all about the banks and has nothing to do with actual tax relief where it counts for you the citizen.

Posted by: Eagleone on February 26 2008 9:00 PM

I also have a problem with the PPP Inc crown corporation that will be tasked with privatizing our essential infrastructure in Canada so that any economic efficiencies are monopolized by private multinationals for profit and not for the public good.

The implications of the PPP Inc have horrendous and grave consequences for Canadian sovereignty and the freedom of future Canadian generations that wish to live in a society of equal oportunity and free enterprise. The PPP Inc by its very nature will be tasked with destroying free enterprise and equal oportunity for all Canadians and yet Canadians will be asked to partner in its funding.

Posted by: NMG on February 26 2008 10:07 PM

"The banks on the otherhand through fractional reserves will be able to create $100,000 of new money based on your $5000 deposit"

I doubt it. Chances are that this money is already sitting in a bank account somewhere. It's not like out of the blue people are going to suddenly put ANOTHER $5,000 in the bank, instead of having it sitting in a pillow case. If people have $5,000 kicking around, it's probably already tied up in the monetary system.

Posted by: dow7500 on February 26 2008 10:22 PM

This is unexpected. Kind of changes some things. Eagleone, don't build some big bank conspirancy. Its a non taxable account that didn't exist before. Be thankful for any bone a government throws. This beats the hell out of the provincial carbon tax budget.

Posted by: pisspulper on February 27 2008 7:11 AM

Aside from the evil bankers master manipulation theory, there is some merit to those wishing to save some money for the ripe years. This has no benefit for the wealthy as the current max limit of donation is $5000, and doesn't provide a means to offset your income bracket. Sure the interest rate probably will turn out to be unfavourable, as usual, but the risk is also not there. Currently you are SUPPOSED to claim you bank accrued interest as income on your taxes, may or not be significant for some. I have never been a fan of RRSP's, due to the fact that should you require a cash supplement due to unforeseen circumstances, you pay a penalty, which may negate any interest gained. Then as you begin to use it, use too much and the penalty is once again is administered. Banks run government so they always win. Nevertheless I am selfish and opt into the have fun and spend spend program. Can't take it with you and why let the bankers play with your hard earned cash.

Posted by: socredible on February 27 2008 8:31 AM

dow7500, it is laughable the way some grovel for small mercies taxwise at the hands of 'our' governments. Thanking them profusely for robbing us a little less in some particular way. While completely overlooking the OVERALL effects a scheme like Flaherty's latest will have on us.

There is already a systemic discrepency of overall consumer purchasing power vis-a-vis overall retail prices of goods and services for sale in our economy. If there weren't, consumers wouldn't be collectively in debt up to their eyeballs and beyond. For debt, in the final analysis, is really no more than a cumulative deficiency of purchasing power recorded over time.

One, of several, reasons this is so is because of the 're-investment' of savings. Every time a dollar received as income, a dollar that has already been 'costed' ultimately into some consumable product, is saved and reinvested, that re-investment creates a new set of 'costs'.

But it doesn't create any additional purchasing power capable of liquidating those 'costs'.

While at the same time it has left the 'costs' of the product in which it originally appeared as a part incapable of being fully liquidated from existing consumer incomes. A further sum equal to what has been re-invested will have to be borrowed from the Banks in order to do that. Where's the problem in that? Just here.

Ultimately, all consumer credit will be found to be based on two things. One is a constant growth in 'productive capacity', (whether actually needed or not), and the consumer's continuing to have a part in the productive process, and income from it.

And the second is continuing inflation. Which seemingly makes the 'value' of your otherwise depreciated house rise over time. (When actually, in larger measure, it is the purchasing power of your 'money' which is FALLING over that time.)

Leaving aside 'inflation', the first prospect above has serious consequences. How many expect that the employment levels in our forest industry, for example, will be the same as existed before the current crisis when we return to more 'normal times? We will, when those times re-occur find that there'll be fewer mills, and yet they'll likely produce more lumber. With far fewer than were previously employed.

Yet still we base our entire economy on there being consumer incomes from EMPLOYMENT, and that these incomes, continually falling everywhere as efficiencies of production rise, are going to be able to fully liquidate the 'costs' of production coming forward int 'prices'? We are building ourselves a debt prison, and our governments are complicent in assisting.

Posted by: caranmacil on February 27 2008 2:10 PM

While it is true a lot of people are building up unhealthy levels of debt i think it still has to be said that people are richer than they ever were. You can quote me stats all day long but you wont convince me we are really suffering. Here is a stat for you :30 percent of canadians plan to travel by air on holidays this year. My family was middle class and we did NOT travle to mexico or hawaii or anywhere else by air every year or three. that was the domain of the rich. We did not have cars beyond what we absolutely needed and we didnt budget for several meals out a month like so many do today. Its true, my mom didnt start working until she was 50 but she had a much harder time staying home, using the wringer washer as her most modern appliance. My dad worked as long as he could, like all our middle class neighbours. Middle class people, even those with two incomes, didnt retire to another country or maintain two houses.
We have it good, better than any other previous generation as far as wealth and the things money brings. There is no harm in admitting that. My father certainly did. I am not saying we should all just shut up and not complain (complaining is what canadians do best) but i do think we need to temper our complaints with a little reality.
An d i do agree, sawmill worker is not a good future career choice. Travel agent maybe? Luxury car sales? Maybe retirement investment advisor?

Posted by: Andyfreeze on February 27 2008 5:11 PM

I am not sure if people are any richer than they ever were caranmacil,I think buying on credit is much easier to do than it ever was!
If anything,I think far too many people are debt ridden and cash poor.
Robbing Peter to pay Paul doesn't help anyone, but it seems to be a fact of life now.
I know of one family who have a car and truck,both fairly new,a boat,a quad, and 2 skidoos.
Oh ya, and a large mortgage.
And guess what,none of what they have is paid for.
It's called a "credit line"and without it they would be toast!

Posted by: pisspulper on February 28 2008 7:49 AM

Ouch, you weren't supposed to tell everyone. By the way our vehicles are 11 years or older. I have no skidoos and the boat sank. But I have 3 mortages throughout the province. Now I just bought a new, but modestly priced motorcycle to play and commute with. Parking the truck to ease the pain of fuel costs, I also pollute less. Damn, I used the dreaded credit line, which generally is doled out to people who have equity or assets. Nonetheless I use my credit line occasionally and pay off the balance within a year. It's considered an earned convenience, should I wait or enjoy. You live once, take advantage of everything!!

Posted by: socredible on February 28 2008 7:58 AM

I think it comes down to what's been said about the two ways to become a millionaire. You can 'have' a million, or 'owe' a million.

And nowadays it seems more are approaching the latter category than the former, though both categories are growing.

The problem is, like the one time Federal Minister of 'Everything' C D Howe once observed, way back in 1956 or 57 when the price of most things was about a fifteenth or twentieth of what it is today, "What's a milllion?" Well, that was a good question then, and it's still a good question now.

You save in the expectation that your savings are going to be used to get you what you want at some time in the future. And that you're going to be paid a bit of interest on them in the meantime. And we're all aware of the power of compound interest.

But the life cycle of the saver is finite, and long before his savings have 'compounded' into the astronomical sums they are statistically capable of attaining if left alone long enough, ongoing inflation will have eaten all of the 'purchasing power' of that money in his lifetime.

So why don't we focus our attention on making the purchasing power of the dollar increase over time ~ which is what it should be doing, as our ability to produce 'more' with greater efficiency continually increases ~ instead of wasting our collective efforts trying to find a new way to save a few crumbs that can't even begin to sustain us?

Posted by: socredible on February 28 2008 8:20 AM

'Debt'in itself is really no more than a 'financial tool' without which our entire modern economy would cease to exist. So when you use your 'credit line' to buy 'now' and 'pay later', there is nothing particularly wrong in your 'individually' doing so, as long as you're certain you've sufficient income or liquidatable assets to cover the repayments. It is your choice, as it should be.

The 'problem' comes at a higher level. In our economy as a whole. It does not distribute sufficient purchasing power as consumer incomes IN TOTAL, in each succeeding 'cycle of production', to FULLY LIQUIDATE the TOTAL COSTS of that production as it comes onto the consumer markets at the prices the retailer or final seller must obtain. There is a 'gap', and it has to (currently) be bridged with more 'debt', or the economy cannot carry on.

This FORCES more and more people into debt. It's increasingly not a 'choice' for them, but a necessity if they are to try to live as 'society' (increasingly) mandates they SHALL live.

That 'shall live' can be seen in its most visible recent form in Gordo's 'carbon tax'. But just look back over the last few decades and you'll see innumberable other examples. Everything from the size and construction details of your residence, to the catalytic converter and air bags in your vehicle. And those are just the tip of the iceberg.

Posted by: pisspulper on February 28 2008 9:23 AM

Ok, now that you have almost completely confused me, I confess that my wife and I live within our means and we are not economically the best consumers. Once in awhile, we splurge only when we are certain the timing is right and the purchase price is acceptible to us. My wife being the modest spender and myself just generally cheap. Saving immense amounts of fortune, is not an option for us, we chose to support the economy and spend within our means, whilst in the same way looking out for the future. I'm not an economy savy individual, like many we are for the HERE and NOW. In simple plain ENGLISH, the pittance of interest received from bankers or as you like "compounded" is merely a facade. There are token fools that believe that saving for death is sensible. Ludicrous at best, all assets rolled over due to inheritance are considered as taxable income. To be in debt is not a sin, neither is being poor. This Planets' CEO gives you one shot at fame and fortune, embrace it, life is short, live it well, manipulate those who would do the same to you. Never regret!!

Posted by: pisspulper on February 28 2008 9:37 AM

I do somewhat understand the logic of your statements socredible and I do accept the fact that debt makes the world economies go round and round. Don't agree with the the principles, but I do accept it. For the entertainment value Google Zeitgeist.com.