Tax Free Savings Account

The Federal Government introduced the Tax Free Savings Account (TFSA) on January 1, 2009. The TFSA is a registered savings account that allows taxpayers to earn investment income tax-free. TFSA allows taxpayers to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetime.

There are no restrictions on the way TFSA funds (contributions and earnings) may be used (ie. purchase a car, renovate a home, start a small business, take a family vacation, or just save for a rainy day). All income levels and all walks of life can benefit from a TFSA. But only a careful review of each person's financial situation will determine how to optimize use of RRPs, RESPs, RRIFs and TFSA.
 
For further details on this product or to open a TFSA please come in and visit with one of our knowledgeable staff today!
 
TFSA Eligibility
The individual owning the TFSA is the holder. Any individual person (not trusts or corporations) who meets all of the following three requirements is eligible to open a TFSA:

  • Resident in Canada, and
  • 18 years of age or older, and
  • Holds a valid Social Insurance Numbe

TFSA Contribution Limit
Contributions to a TFSA may only be made by the holder and the amount is not tied to the income of the holder.
The maximum contribution has changed over the years. Here’s are the limits:

2009: $5,000
2010: $5,000
2011: $5,000
2012: $5,000
2013: $5,500
2014: $5,500
2015: $10,000
2016: $5,500

Allowed sum of contributions as at 2016 is $46,500. Individuals who are 18 may only contribute that years limit, they may not use past years contribution room as it was not available to them.
 
TFSA Unused Contribution Room
When a TFSA holder contributes less than the maximum contribution limit, the difference is referred to as unused contribution room.

Unused contribution room will accumulate each year.

Unused contribution room is carried forward indefinitely, allowing the holder to catch up by contribution more than the maximum contribution limit in a future year.

A TFSA withdrawal will increase the contribution room for the year after withdrawal. As a result, when amounts are withdrawn from a TFSA they can be recontributed in the future (the following year) when funds become available.

Canada Revenue Agency will confirm the contribution room on the annual Notice of Assessment.
 
TFSA Overcontributions
When a TFSA holder over contributes they will be penalized by CRA. Over contributions often occur when an individual withdrawals funds from their TFSA and then deposits those funds back into the TFSA within the same calendar year. The contribution room gained from the withdrawal can only be utilized in the following calendar year.

Example: The TFSA holder deposited $5,000 in January 2009, withdrew the $5,000 in May 2009 and then deposited the $5,000 back in September 2009. In this scenario the TFSA would be penalized as the contribution room would not have been available again until January 2010.
 
Qualified Investments
The types of eligible investments are restricted under the Income Tax Act and include:

  • Term deposits and GICs
  • Variable interest savings accounts
  • Credit union shares (if available)
  • Index-linked term deposits
  • Mutual funds
  • Publicly traded securities
  • Bonds

Withdrawals
TFSA holder may withdraw funds at any time; withdrawals may be restricted by investment terms. Withdrawals are not reported as taxable income and are not subject to income tax.

TFSA withdrawals of contribution/earnings will increase contribution room for future years, but not the current year.

Withdrawals will not impact eligibility for federal income tested benefits and credits (e.g. OAS, GIS, Age Credit, GST, EI, child-tax benefit, working income benefit).

Mutual funds are offered through Credential Asset Management Inc.  Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing.  Unless otherwise stated, mutual fund securities and cash balances are not insured or guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.  Their values change frequently and past performance may not be repeated.
 

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