Tax Free Savings Account (TFSA)
What is a TFSA?
A TFSA is not a traditional savings account. It’s a type of plan that allows you to earn many types of investment income tax-free (including capital gains). A TFSA can help you save for a large purchase or supplement your retirement savings plan when you've maxed out your RRSP.
How do you contribute to a TFSA?
- The maximum annual contribution limit is determined by Canada Revenue Agency each year. The annual contribution limit started at $5,000 in 2009 when the TFSA was first introduced. This amount is indexed to inflation and rounded to the nearest $500 on a yearly basis. Check the Canada Revenue Agency website for this year’s annual contribution limit.
- Any unused contribution room is carried forward to future years.
- Contributions are not tax deductible.
- Income, losses and capital gains are not included in taxable income.
Who is Eligible?
- Any resident of Canada who is 18 or older, and has filed an income tax return is eligible to contribute.
- You can have more than one TFSA, but the maximum allowable contribution amount applies to the total of all TFSAs you hold.
- There is no spousal TFSA, but you can give money to your spouse to contribute to his or her own TFSA.
- Unlike an RRSP, you can contribute to a TFSA even if you haven’t earned income.
How to withdraw from a TFSA?
- Increase contribution room by the same amount in the following year
- Do not affect eligibility for federal income-tested benefits and credits such as Canada child tax benefit, working income tax benefit, GST credit and old age security benefits
- Are not included in taxable income
- Can be made at any time and for any purpose
For more information on TFSAs, contact your MDL Advisor.