The Government has introduced a new
Tax-Free Savings Account (TFSA). Starting in
2009, Canadians are able to contribute to this
account. The TFSA allows Canadians to set money aside
in eligible investment vehicles and watch those
savings grow tax-free throughout their lifetimes.
TFSA savings can be used to purchase a new car,
renovate a house, start a small business or take a
Canadians from all income levels and all walks of
life can benefit.
How the TFSA Works
Canadians aged 18 and
older can save up to $5,500 every year in a TFSA.
Contributions to a TFSA
deductible for income tax purposes but
investment income, including capital gains,
earned in a TFSA is not taxed, even
Unused TFSA contribution room can be
carried forward to future years. You can
withdraw funds from the TFSA at
any time for any purpose. The amount
withdrawn can be put back in the TFSA at a later date
without reducing your contribution room.
earned in a TFSA nor withdrawals affects your
eligibility for federal income-tested benefits and credits.
Contributions to a spouse’s TFSA
allowed and TFSA assets can be transferred
to a spouse upon death.
How Is a TFSA Different From a Registered
Retirement Savings Plan?
Both plans offer tax advantages, but they have
● Contributions to an RRSP are deductible and
reduce your income for tax purposes. In
contrast, your TFSA savings are not deductible.
● Withdrawals from an RRSP are added to your
income and taxed at current rates. Your TFSA
withdrawals and growth within your account are
not— they are tax-free.
A Flexible Account for a Lifetime of Savings
Not everyone is able to save each and every year. Those who cannot contribute $5,000 in a given
year will be able to carry forward their unused
contribution room to future years.
In addition, Canadians may want to use their
savings—to buy a new car or a cottage, or start a
small business—and the full amount of withdrawals
can be put back into the TFSA in the future.
Couples often save and plan together, so
Canadians can contribute to their spouse’s or
common-law partner’s TFSA, depending on the spouse’s
or partner’s available room.
No Impact on Income-Tested Benefits
Neither income earned in a TFSA nor withdrawals
will affect your eligibility for federal
income-tested benefits and credits, such as the
Guaranteed Income Supplement and the Canada Child
Tax Benefit. This will improve incentives for people
with low and modest incomes to save. Example. Alexandre and Patricia, a modest-income
couple, expect to receive the Guaranteed
Income Supplement (GIS) in addition to Old
Age Security and Canada Pension Plan
benefits when they retire. They earn $2,000
a year in interest income from their TFSA
savings. Neither this income, nor any TFSA
withdrawals, will affect the GIS benefits (or any other
federal income-tested benefits and credits) they
receive. If this $2,000 were earned on an unregistered
basis, it would reduce their GIS benefits by $1,000.
What can you invest in?
TFSA will be allowed to invest in basically the
same qualifies investments currently permitted
for RRSP, including stocks, bonds, funds etc.
Contact us for free
consultation, to discuss your investment program, or just to ask
have any questions or concerns feel freee