Dr. Garth

What do you call three GenZs in a basement apartment? A whine cellar.

Okay, enough with the ageism revenge. It’s unbecoming to the blog’s status as a regional mental & financial health centre. Let’s instead focus on getting you better. And here’s Adam to kick off this session – a guy about to turn his back on the land of maple and moaning.

“I’m a daily blog reader. Just have a question,” he says. “I’m taking a position with my company in Europe. My wife and I have almost $450k in our TFSAs. TFSA’s aren’t covered by the tax treaties between Canada and the European Country.

What should we do with the TFSAs. We don’t need the liquidity should we just let it grow tax free until retirement? And pay taxes on the dividends in my host country? I understand that I wouldn’t be able to contribute while I’m away. I’m not sure if the move would be permanent (20+ years) or temporary (less than 5 years). Any thoughts?

Four hundred fifty grand? You two must have loaded up on Nvidia or something similar to grow that nestegg – which is twice the current contribution total for tax-free accounts. So, congrats. But, sadly, your free ride will be coming to an end.

Exiting Canada means becoming a non-resident which, in turn, means you’ll be hit with a departure levy on your taxable assets. What you own is deemed to be sold the day you depart (even if you don’t sell anything), so capital gains tax may be triggered. Exempt from that calculation are things like cash, real estate plus assets in any registered account or pension plan. Everything in a non-registered account would be subject to the deemed disposition.

Any RRSP, by the way, is safe in Canada. No tax. You can’t make any new TFSA contribution, but the RRSP may still be fed if you’re carrying unused room.

In the new country you sign up as a taxable person and pay on worldwide income – including what the TFSA earns (since it’s not considered a untaxable registered account). Interest, dividends and capital gains earned inside the Canadian plan must be reported.

Just like Hotel California. You can check out any time, but you can never leave.

Next? It’s Ahmed, who seems to have mastered the art of a perfect MSU.

“I am a long-time, quiet, reader of your blog, since 2010. I never reached out although I am a great admirer of your blog and work,” he writes. “Your commentary on political theater in the country is very candid, spot on and brave. The noise from opposing views, sometimes, seem deafening yet standing your ground and being a voice of reason is one of the additions that drives me to your blog every day.”

Okay, enough fawning (which I love). Get to the question.

You have talked about Joint investment accounts and I am interested in opening one. What institution(s) is / are better? Would it be best to open with spouse only, or include kids (all over 18)? Tenancy with survivorship OR Tenancy in common?

Second, in a recent blog post you talked about Islamic investment principles and fixed income (bonds). I always steered away from bonds and never heard of the short reasoning in that blog. I would love to know more and understand how do you think bonds can fit in a halal portfolio.

Having a non-registered (taxable) account is an important part of an integrated portfolio since in retirement you can draw from it in a low-taxed manner – dividends and capital gains – while letting the registered accounts continue to plump, tax-free, until converted to a RRIF (past age 71). Equally important is setting up a joint non-reg with your spouse, since this makes it easier to split income and also ensures your squeeze gets instant ownership of everything if/when you croak. No probate. No will. No delay.

All of the major banks have professional investment operations plus online brokerages you can work with, or choose an indy like Raymond James or Canaccord. If you’re cheap and trust an algo to make decisions, opt for a robo. All are covered by CIPF, giving you a million worth of insurance (far in excess of the protection offered on bank GICs, for example). As for the kind of account, you should opt for one with survivor rights.

Add your kids? Why? As joint owners an adult child would be able to add or remove assets on their own, since they actually own them equally with you. Is that what you wish? Additionally, the children would be responsible for taxable income the account generated – and they cannot be removed in the future without potential tax consequences.

Also, you can’t just add the names of kids to an existing account. It has to be closed then reopened under the new ownership – and that is a tax-triggering event which could result in a capital gains tax bill. This might be avoided by giving the child only a survivorship right, not that of beneficial ownership.

As for the bands, this is complicated for Muslims since riba (interest) is not halal (permitted) under Islamic law. Interest payments on debt is viewed as usury and therefore are prohibited (haram). But this does not change the fact that having fixed income in a portfolio adds balance, diversity and reduces equity risk.

So, Ahmed, check out Sukuk investments, which are similar to bonds but generate a profit based on income flowing from underlying assets, rather than the repayment of principal plus interest. Like bonds, these have maturities as well as ratings from major agencies and generate routine income.

Religion has a role to play. But it won’t pay the mortgage.

About the picture: “Your threat of endless Chrystia pics is indeed a call to action.,” write Julia and Neil. “Here is Riley fighting the frigid waters of Englishman River Falls on Vancouver Island. Heart of a champion, strength of a wet rat. He is no doubt barking his head off at all the doorbells in dog heaven.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.