Here’s an example of a portfolio within a single TFSA and what qualifies for CDIC coverage and what doesn’t:
GICs and term deposits are TFSA-eligible deposits that are insured up to $100,000. As a result, $15,000 of the $27,000 in total deposits is covered.
Stocks, bonds, and mutual funds are not insured by the CDIC, thus $12,000 in those investments is not covered.
Is my TFSA insured?
A: In the event that your bank fails, the Canada Deposit Insurance Corporation will cover your cash or GICs in your Tax-Free Savings Account (TFSA) up to $100,000. It is not protected if the money is placed in mutual funds, ETFs, or equities. But that’s not the risk I’d be concerned about. Instead, concentrate on the types of investments you have, whether they are in a TFSA or an RRSP. If the money in your TFSA is being used to save for something specific, such as a new car or a down payment on a home, keep it in low-risk investments like GICs or cash. A diverse portfolio will go up and down over time, but it is unlikely to go to zero if the goal is to invest long-term for retirement. Unless, of course, a meteor strikes the Earth, in which case we’ll all have bigger things to deal with.
Is a TFSA protected?
This is an excellent question, and when it happens, it prompts a comparison of TFSAs and RRSPs, as both are viable options for saving. If you file for bankruptcy, you must declare all of your assets to the trustee, including RRSPs, TFSAs, and other investments.
In the event of bankruptcy, tax-free savings accounts are unprotected. Contributions made within the previous 12 months may not be protected by RRSPs, but contributions made more than 12 months prior to filing are.
What investments are not covered by CDIC?
Here’s an example of an RRSP portfolio and what qualifies for CDIC coverage and what doesn’t:
Within an insured category an RRSP GICs and term deposits are eligible deposits. Deposits that fall into one of the categories are protected up to $100,000. As a result, $60,000 of the total deposits of $240,000 is covered.
Stocks, bonds, and mutual funds are not insured by the CDIC, thus $180,000 in those investments is not covered.
Does CDIC cover 10 year GICs?
CDIC insurance is available on term deposits, including Guaranteed Investment Certificates (GICs). That means a GIC with a seven-year original duration, for example, is covered.
Are money market funds CDIC insured?
Money market funds, on the other hand, aren’t fool-proof because they’re not insured by the Canada Deposit Insurance Corporation (CDIC) or guaranteed by their selling businesses. Investors should cease thinking of them that way.
Can the government take your TFSA?
If you owe taxes, your RRSP retirement funds are at risk from the Canada Revenue Agency’s hungry hands. And don’t be fooled into thinking it won’t happen.
To add insult to injury, when the CRA forcibly sells your RRSP investments, the proceeds are added to your taxable income for the year, resulting in an additional tax bill that can be devastatingly high depending on the amount confiscated by the CRA.
A Requirement to Pay letter from the IRS to a financial institution is ridiculously simple. It does not necessitate prior debt certification. The seizure is not ordered by a judge. Before the demand to pay letter is received, you are not given the opportunity to have a hearing. In most circumstances, you will be completely unaware that a demand letter has been sent. After the fact, you realize that your whole life savings have been wiped out by a single CRA letter.
A self-directed RRSP in a money market account is not the safest location to save for retirement when you owe taxes. The CRA has the authority to take monies if you have the choice to withdraw funds at any time. There are alternatives that are less dangerous.
The CRA cannot demand the withdrawal of your RRSP funds if they are in a GIC or another locked-in investment. The CRA, on the other hand, can execute the garnishment as soon as the investment matures, even if you haven’t had a chance to move the assets over into a new investment. One of our clients’ RRSP contributions was lost this way when the bank just submitted the funds to CRA on the maturity date.
TFSA Savings Can Also Be Seized
If the money in a TFSA (Tax-Free Savings Account) is not in a locked-in investment, it will be at risk. When a GIC matures, much like an RRSP, your financial institution is required to forward the proceeds to the CRA.
The one bright spot in all of this is that an s.224 Demand to Pay order is only valid for 12 months. So, unless the CRA updates the s.224 demand, your investments may be protected on maturity if they don’t mature within a year.
It ultimately boils down to this: nothing is immune to CRA seizures. Get help quickly if you owe taxes. Before your funds are depleted.
Can a TFSA be garnished?
TFSAs are not exempt from seizure, which means that if your creditors obtain a judgment against you, they may be able to seize them. Furthermore, if you owe the bank that holds your TFSA money on a credit card, they may be able to use something called a lien to seize it “To simply apply your TFSA money to pay down a credit card, use the “right of offset.”
In the event that you declare for bankruptcy, your TFSA will be confiscated and distributed among your unsecured creditors.
Alternatively, you might make a payment to your creditors “A “lumpsum” proposal a one-time payment of, say, $12,000 to satisfy your $40,000 debt.
Your creditors are likely to accept the offer.
Of course, that doesn’t leave you with much to eat…
Find a trustee in your region using the information provided and contact them to discuss your situation and choices.
What is protected by CDIC?
Everyone who has money in an RRSP will have to start taking money out of an RRIF when they reach the age of 72. Consider what would happen if your bank went bankrupt that year, preventing you from accessing your money.
CDIC is a Crown organization that assures that qualifying deposits of depositors are protected in the event that one of its member banking institutions fails.
A registered retirement income fund can protect up to $100,000 in cash and term deposits, such as Guaranteed Investment Certificates.
The same is true for qualifying deposits in Tax-Free Savings Accounts and several other CDIC insurance categories.
Since 1967, no retiree or Canadian of any age has lost a single dollar of their insured deposits due to a CDIC member institution’s failure.
If Canadians are concerned about their investments being lost, they can invest in CDIC-insured products.
What is a deposit TFSA?
A Tax-Free Savings Account (TFSA) is a tax-advantaged savings account that allows you to earn money without paying taxes.
A TFSA is similar to a basket in which you can keep qualifying investments that may yield tax-free interest, capital gains, and dividends.
A TFSA can help you attain your objectives sooner, whether you’re saving for your dream wedding, a rainy day, your first house, or a long vacation. To get you started, we’ll explain what a TFSA is, how it works, and how it can help you save money.