Tax- Free Savings Accounts
As of January 1, 2009, all Canadians 18 years and older can save up to $5,000.00 every year in a tax-free savings account (TFSA). TFSA’s will be indexed to inflation, so the $5,000.00 yearly limit will increase over time. This new Canadian Government initiative will give Canadians an incentive to save, and help strengthen the Canadian economy.
Canadians are permitted to withdraw funds from their tax-free savings account (TFSA) at any time, and for any purpose.
The amount withdrawn from a Tax-Free Savings Account (TFSA) can be put back into the TFSA at a later date, without affecting one’s contribution limits.
Unused TFSA contribution room can be carried forward to future years.
Withdrawals from a RRSP are added to your income for that year and are taxed accordingly. Withdrawals from, and growth inside a Tax-Free Savings Account are not taxed, investment profits, and capital gains, are not taxed.
The initial financial contributions to a Tax-Free Savings Account are not tax deductable for income tax purposes.
Federal income tested benefits and credits, such as the Guaranteed Income Supplement and the Canada Child Tax Benefit, are unaffected by withdrawals from or income earned in a Tax-Free Savings Account.
Contributions to a spouse’s Tax-Free Savings Account are permitted, and TFSA assets can be transferred to a spouse upon death. TFSA can be included in Canadian Estate Planning. When a TFSA account holder dies the funds from the TFSA of the deceased can be transferred directly to the beneficiary rather than becoming part of the deceased’s estate. A TFSA does not go into probate so there are no probate fees.
Tax-Free Savings Accounts are a good place to shelter highly taxed income, such as options, securities, foreign securities dividends, or other investments that generate interest income.
Financial Investments eligible for inclusion in a TFSA
Canada Savings bonds
Provincial Savings Bonds
Canadian Mortgages (principle residences only)
Financial Investments not eligible for inclusion in a TFSA
No Precious Metals such as Platinum, Gold or Silver bars,
No Personal Assets such as Gems, Art, Antiques or Collectibles
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