04/25/2013 12:42 EDT | Updated 06/25/2013 05:12 EDT

You're Being Taxed on Your Tax-Free Savings Account

financial accounting

If you're a parent, you know that feeling when your child doesn't want to listen to you. Sometimes you just want to send them to their room and make them stay there until they'll listen. When I was growing up, my "time outs" for being defiant were dealt with in a little more physical manner. Regardless, you know what I'm talking about.

The point is that I wish we could call a "time out" for politicians. Wouldn't it be great if we could send them to some dark room in Parliament and make them think about what they're doing? Case in point is the constant barrage of reports and media articles telling us that Canadians are not saving enough for retirement.

A typical reaction of the government is to commission a study, hire consultants and overall spend more money so they can figure out how to "help" Canadians save more for retirement. But here's my idea: stop taxing people for saving.

Now most of you may think I'm talking about the taxes paid on investment income like interest, dividends or capital gains, but I'm not talking about that. I'm talking about the tax you pay on your RRSP and all other types of investment accounts. Tax on TFSAs, RESPs and RDSPs. Yes, you're reading this correctly.

Didn't you know that both federal and provincial governments are taxing all of these accounts on an annual basis? You thought that they were tax sheltered and that you didn't pay tax on them until you took the money out or, with a TFSA, that they weren't taxable at all. Surprise! You were wrong.

How is this possible, you ask? Well, it's really quite simple. The federal and provincial governments charge GST/HST on investment management fees and trustee fees. That tax is collected by withdrawing money from your investments.

The other thing you probably didn't know is that it doesn't matter where you live in Canada; this affects everyone.

If you're from British Columbia, for example, you were paying GST (5 per cent) on investment management and trustee fees before the 12 per cent HST was brought in; however, as of April 1 2013, you're back to paying 5 per cent. That's good, right? Yes, it is if you are paying investment management fees and trustee fees, but not so great if you own mutual funds.

Those of you who live in Alberta, Yukon, North West Territories, Nunavut, Saskatchewan, or Manitoba also get to pay HST (or a portion thereof) on your mutual funds. That's right, a pro-rated share of your money is being extracted each month from your investments. This comes out of the funds so everybody gets hit. As a matter of fact, when you include the GST-QST harmonization in Quebec and the introduction of HST in PEI, your tax bill in 2013 should increase (but that shouldn't really bother you because it's hidden).

I find it interesting that it's this same type of misdirection that pick-pockets use to steal from people. They get the "mark" looking at something else. In this case, that something else includes reports, studies and inquiries telling you that you're not saving enough.

Well, maybe now that some of you are more informed, you'll be more careful about what type of investments you'll own. Better yet, contact your local provincial and federal politician and ask them to stop stealing from you.

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