Let me begin to create the rules such an account would have to be based on, and what it could do for Canadians and consequently for Canada as well.
First, the rules. The TFTA would have to have annual contribution limits and would need to allow people to take money out and reuse their contribution room, not lose it like when they take out some money from their RRSP. I also believe that, in order to stop misuse of the account, the money contributed would have to come from after tax income, but there would be no tax on investment gains. Now, the trading frequency. This account should allow for any frequency of trading- day trading, swing trading, and long term investments. Finally, to make things really strict and push people to educate themselves first, no losses while investing from the TFTA can be claimed to get a tax break on your income. Also, this type of account would be available only to individuals, not to corporations. Therefore, each account holder/investor would be supremely responsible for what happens with their account and what investment approaches they take.
The major caveat here is for our government. Let us say that more and more people use this account to day trade and they become very successful at it. According to Wealth Within, 80 percent of day traders fail, 10 percent break even, and the remaining 10 percent make money consistently. These numbers seem bleak until you realize that, according to statistics verifiable online from reputable sources, 57 percent of Canadian businesses with 1-4 employees fail within the first 10 years. Generating money outside of a paycheque is not easy, any way you cut it. So, for those traders who become very successful day trading out of their TFTA, the government cannot tax their hard earned gains. This also means that, quite possibly, there will be millionaires who will end up living off of their gains tax free. Now, remember, that does not suck for us the Canadian People, and it does not suck that much for the government either. We have major corporations keeping their money offshore, even more corporations utilizing the advantage of low corporate taxes and so on. Therefore, our government is no stranger to allowing those who get rich to pay less taxes. Sure, in this case TFTA millionaires would pay zero taxes on their main income, but they would also spend more money in the local provincial and federal economies, they may marry sooner and have more children so we can grow our population faster, and they could invest in other businesses that would give other people salaries and a chance to settle down and have kids too, if they so choose. Then, the government could at least tax their other business ventures that are financed by their tax free TFTA gains. So, as long as our government refuses to be impatient about getting its cut from small investors’ hard work, this would be an awesome solution.
Now, in what ways would it be awesome? Well, for the first time ever, the TFTA would be a clear and direct way to present a trading account to the masses. In addition, the inability to claim losses would inspire most people who open this account to educate themselves first through courses or hours and hours of YouTube videos. Unlike a RRSP where most people just do what they’re told and learn nothing while investing thousands of their hard earned money, the ground rules of the TFTA would create informed, educated, strong traders. Their access to fast Internet, affordable or zero commission trading, affordable chart and analysis platforms like Tradingivew or Thinkorswim, all of this would combine with education to do a couple of powerful things. First, it would allow Canadian small investors to increase their trade win rate certainly beyond 60 percent. Second, it would protect most small investors from falling for pump and dump schemes that are a bitter lesson for many investors around the world at least once in their lives, and sometimes far more often than that. Finally, small investors who trade more frequently would be able to do with their TFTA money something that RRSP investors never really can- SELL AROUND THE TOP AND BUY THE DIP. Even a child can see on a basic chart that stocks and ETF’s have three things in any given year (month, day, minute?)- the overall trend and, within that trend, the tops and the dips. Every dip is a setback, so why should people be forced to let it happen? They would not be with the TFTA.
I am sure there are more things that could be discussed on this topic, but I hope I have shared enough of my ideas to either confirm what you are already thinking, or to get some of your own ideas going. Let me know what you think if you want, I would appreciate it. Until next time, dearest readers. :)