How does a TFSA work? Where does the interest come from?
"A TFSA is a tax free savings account.  It is a type of account where you can buy various investments like stocks, bonds, or funds (mutual, exchange traded, and money market).  There are some other options but it's best to see what your bank or broker will allow. You probably specified the type of investment when you opened the account.  You can look at your statements or maybe online to see what you're invested in.  My guess is some kind of HISA (high interest savings account).  This is kind of the default option for banks. The government created these accounts for a variety of reasons.  The main stated reason was to encourage people to save.   Obviously they also do things to get votes.  There was an outcry after the change to a type of investment called ""investment trusts"".  This could be seen as a consolation prize.  These can be valuable to seniors for many reasons and they tend to vote more often.  There was also an election promise to eliminate capital gains taxes in some fashion. It's not profitable for the government, in fact it supposedly cost the federal government $410 million in 2013.  Banks make money by investing your deposit or by charging fees. You can see what every tax break 'costs' the government in lost revenue here http://www.fin.gc.ca/taxexp-depfisc/2013/taxexp1301-eng.asp#toc7" "As to where the interest comes from: The same place it comes from in other kinds of savings accounts. The bank takes the money you deposit and invests it elsewhere, traditionally by lending it out to others (hence the concept of a ""savings and loan"" bank). They make a profit as long as the interest they give for ""borrowing"" from you, plus the cost of administering the savings accounts and loans, is less than the interest they charge for lending to others. No, they don't have to pay you interest -- but if they didn't, you'd be likely to deposit your funds at another bank which did. Their ideal goal is to pay as little as possible without losing depositors, while charging as much as possible without losing borrowers. (yeah, I know, typo corrected) Why do they get higher interest rate than they pay you? Mostly because your deposits and interest are essentially guaranteed, whereas the folks they're lending to may be late paying or default on those loans. As with any kind of investment, higher return requires more work and/or higher risk, plus (ususally) larger reserves so you can afford to ride out any losses that do occur."
You can either borrow money... credit card, line of credit, re-finance your home, home equity line of credit, loan, mortgage, etc. Or you have other invest in your company as equity.  They will contribute $X to get Y% of your company and get Z% of the profits.  Note amount of profits does not necessarily have to equate to percentage owned.  This makes sense if they are a passive investor, where they just come up with the money and you do all the work.  Also voting rights in a company does not have to equate to percentage owned either. You can also have a combination of equity and debt.  If you have investors, you would need to figure out whether the investor will personally guarantee the debt of your company - recourse vs non-recourse.  If they have more risk, they will want more of a return. One last way to do it is crowdfunding, similar to what people do on Kickstarter.  Supporters/customers come up with the money, then you deliver the product.  Consulting practices do something similar with the concept of retainers. Best of luck. "Ditto Nate Eldredge in many ways, but let me add some other thoughts. BTW there are not four types of account, but five. You're forgetting equity, also called capital. Would it be possible to design an accounting system that does not have 5 types of accounts, maybe is simpler in other ways, and is internally consistent and logical? I'm sure it is. But what's the advantage?  As Nate points out, the existing system has been in use for hundreds of years. Lots of people know how it works and understand it.  I'd add: People have long since worked out how to deal with all the common situations and 99% of the odd cases you're likely to hit. If you invent your own system, you're starting from scratch. You'd have to come up with conventions to handle all sorts of situations. How do I record buying a consumable with cash? How do I record buying a capital asset with credit? How do I record paying off debts? How do I record depreciation? Etc etc. If you worked at it long and hard enough and you're a reasonably bright guy, maybe you could come up with solutions to all the problems. But why?  If you were approaching this saying, ""I see these flaws in the way accounting is done today. I have an idea for a new, better way to do accounting"", I'd say good luck, you have a lot of work ahead of you working out all the details to make a fully functioning system, and then persuading others to use it, but if you really do have a better idea, maybe you can revolutionize the world of accounting. But, ""The present system is too much trouble and I don't want to bother to learn it"" ... I think that's a mistake. The work involved in inventing your own system is going to end up being way more than what it would take to learn the existing system. As to, Aren't liabilities a lot like assets? Well, in a sense I suppose. A credit card is like a checking account in that you can use it to pay for things. But they're very different, too. From an accounting point of view, with a checking account you buy something and then the money is gone, so there's one transaction: reduce cash and increase office supplies or whatever. But with a credit card there has to be a second transaction, when you pay off the charge: So, step 1, increase debt and increase office supplies; step 2, decrease debt and decrease cash. Credit cards charge interest, well you don't pay interest to use your own cash. Etc. One of the beauties of double-entry book-keeping is that every transaction involves a debit and a credit of equal amounts (or a set of debits and credits where the total of the debits equals the total of the credits). If you combine assets and liabilities into, whatever you call it, ""balance accounts"" say, then some transactions would involve a matching debit and credit while others would involve a positive debit and a matching negative debit and no credit. I'm sure you could make such a system work, but one of the neat built-in protections against error is lost. There's a very logical distinction between things that you have or that others owe you, and things that you owe to others. It makes a lot of sense to want to list them separately and manage them separately. I think you'd pretty quickly find yourself saying, ""well, we have two types of balance accounts, those that represent things we have and which normally have positive balances, which we list on chart A, and those that represent things we owe and which normally have negative balances, which we list on chart B"". And before you know it you've just reinvented assets and liabilities." How would the RRSP know where the money came from? You have two separate financial operations going on: You invest some money, within the limits set by the law, in a Tax Free Savings Account.  Near the end of the year, you take the money, plus interest, out of the account.  As you may guess by the name, you need not report the interest as income. There are no restrictions on the money, except that you can't put it back in the TFSA until the new year.  The money is not segregated, or frozen, or marked with an exploding dye-pack.  It's just money in your regular bank account, or your pocket, or under your mattress. During that year, you also work for a salary.  Some is deducted from your salary to prepay your tax responsibilities, subject to a final calculation . You spend some and save some.  The money you save also goes into your bank account, your pocket, or under your mattress. You can even take some of your money from your chosen repository and put it in a RRSP, which postpones the need to pay tax on the original deposit and on any earnings on the deposit.  The money you take has lost all sense of identity:  it isn't TFSA money or salary, or paper route money, or twelfth birthday money.  It's just money... I'm having a difficult time understanding how Chevron is avoiding taxes through party related loans. From my understanding, Chevron is providing loans to its Australian subsidiary at interest rates higher than market benchmarks. Does this shift profits from Australia to the U.S. and how does it help Chevron avoid taxes even though the corporate tax rate is higher in the U.S. than in Australia? Wouln't they want to be taxed at the the lower tax rate in Australia than in the U.S.? The more description the better, thanks! Edit: I think I understand that Chevron is giving out large loans with high interest rates to its subsidiary in Australia and I think the Australian subsidiary is converting its revenues to pay back the loan thus looking like profit in the corporation's books in Delaware. How is the money to pay back interest being raised if not from revenue? And how is that revenue not being taxed? "I did a little research and found the eligible investments for TFSAs. In this document under heading ""Shares of private and other corporations"", sub heading ""Shares of small business corporations"" there is clause about owning less than 10% share and less than $25000 total value of the corporation. Generally, a connected shareholder of a corporation (as  defined in subsection 4901(2) of > the Regulations) at any time  is a person who   owns, directly or indirectly, at that time,  10% or more of the shares   of any class of shares of the  corporation or of any other corporation   related to the  corporation.    However, where   • such a person is   dealing at arm's length with the  corporation or any other related   corporation; and   • the aggregate cost amount of all shares of the   corporation  or any other related corporation the person owns, or is    deemed to own, is less than $25,000 that person will not be a   connected shareholder of the  corporation. For purposes of the 10%   and $25,000 tests, the rules in the  definition of ìspecified   shareholderî in subsection 248(1)  apply with the result that certain   shares will be deemed to be  owned by the shareholder. For example, by   virtue of  paragraphs (a) and (b), respectively, of that definition,   an  annuitant, a beneficiary or a subscriber under a plan trust is    deemed to own the shares owned by a person with whom the  annuitant,   beneficiary or subscriber is not dealing at armís  length, as well as   the shares owned by the plan trust.  In addition, any share that  • the annuitant, beneficiary, or subscriber under a plan trust;  or • a person not dealing at arm's length with any of the above  has a right to acquire is also included in the calculation of the  percentage and   cost amount of the shares held for purposes  of the 10% and $25,000   tests pursuant to subsection  4901(2.2) of the Regulations." "One is a choice the other is not. While they are both liabilities on the balance sheet, in the real world they are quite different.   We do not feel as much ownership over our money that goes to interest payments as we do over our tax payments.  Taxes pay for our government and the services it provides.  Interest, on the other hand, is what we pay in order to have a bank loan us money.  Similar to paying for a good or service obtained from some other business, we do not feel we have a say in what the bank does with that money.  If we disapprove of a business' practices, we stop doing business with them; assuming there are other choices.  We can not practically avoid dealing with our government.   We certainly feel that we should have a say in what is done with our tax money.  I doubt there is anyone in the world that completely approves of their government's spending.  It is very easy to feel marginalized with regard to our tax payments.  For example, some people feel resentment because their taxes fund the welfare rolls. All that said, I believe there is little overlap between the two groups.  It seems to me that you are referring to those with large amounts of high interest (e.g. credit card) debt.  I doubt that a large percentage of them are scouring the tax laws, looking for deductions and loopholes.  If they had that mindset, they would also be working hard to get out of the hole they are in.   In summary, we choose to pay a financial adviser, to take out a loan or to obtain a credit card.  We do not choose to pay taxes.  Since taxes are supposed to pay for our government and things which should benefit everyone, we want a say in what is done with it.  This is also the case because it is forced on us.  (""Fine son, I'll lend you some money, but I don't want you buying cigarettes with it."")  Since our say is limited and we likely will not approve of everything our government does, we want to exert what control we do have: reduce our payments as best we can." "You are not required to contribute to a TFSA or an RRSP. Nobody contributes to OAS, it's a program to provide benefits to old people for them to be ""secure"". The only fund you MAY contribute to is CPP. If you're being paid a salary by a Canadian employer they will deduct some money from your salary (and add more money of their own) as CPP contributions. Ignore the getting of CPP early or late, since that's just a 5 year shift not related to ""ok, I'm leaving the country, send me my pension."" Your issue is more ""can I collect when I no longer live there?"" Plenty of Canadians retire outside of Canada (the warmth of Florida lures many of us) and collect their CPP. There is even a page about the mechanics of getting your pension in another currency. That said, CPP is a very small pension. If you work for 40 years at more than $50,000 a year and wait till age 70 to collect you will still get less than $1000/month. Working for less time, less than that salary, or taking it before you're 70 will all reduce it substantially.  Probably more relevant to you, you can have your Canadian years counted as American ones thanks to a Social Security Agreement between the two countries." This is how its done  I am a certain french bank, aka sg  I have some PIIGS debt, I can use this as collateral at face value (100), with the ECB in order to secure cash... Lets say I use 1mn of BTPS (italian debt), this has an MTM (clean) of 88.  I use that 88 to get me 100 (1mn) of cash, from which I buy another BTPS, for (88), of which I use as collateral pledged to the ECB to get this, get another BTPS.  So now I am long 3 BTPS, all pledged to the ECB and I have 36 in cash and I owe the ECB 300+r in 3 years.  remember the yield on my shitty btps is a lot higher than the interest on the deposits.  Secondly, I have three years, so I don't need to give a fuck about the mark to market on the notes (I could even buy a 2 year and n month note maturing just before). So I can make some free yield at the ECB's expense.  Also this frees up 36 in cash, of which I can use to meet short term funding instead of tapping the bond market, this trade can be made infinitely, although the ECB might catch on.  You can view it as getting a mortgage on your house to buy another house, then mortgaging house #2 to buy house #3, and so on.