TFSA : Tax Free Savings Account

The TFSA is a tax-free account that allows clients to save money for any purpose, with all investment income and growth earned tax free. It can be a great addition to RRSP savings, for example, if the client has used their RRSP room or is retired or has no earned income. The TFSA is a great way to get tax benefits while saving for a short-term (like a vacation or car) or long-term goal (retirement, future health care etc.).

Benefits of the TFSA

  •  For information about contribution limits, transfers and withdrawals, please visit the CRA website.
  •  Contributions are not dependent on income levels (no earned income is required)
  •  Withdraw money for any reason – tax free. No tax will deducted from the withdrawal and no interest or growth is declared as taxable income.
  •  Don’t lose contribution room. If you don’t contribute, the room carries forward and is added to contribution room in the next year. For example, if the client contributed $2,000 in 2009, his contribution room in 2010 was 8,000 ($3,000 carried forward from 2009 plus $5,000 for 2010)
  •  Withdrawals can be deposited back into the plan in the following calendar year (or any subsequent year) in addition to the annual contribution room
  •  Can provide money to a spouse or child (over age 18) to contribute to their own TFSA, without being subject to income attribution rules. All investment income accrues to the spouse on their own TFSA. Note: the funds must come directly from the owner of the plan or owner’s spouse, clients can give money to their spouse or adult children to deposit into their own TFSA. All deposits must be viewed as coming directly from the account owner or account owner’s spouse & not another third party.
  •  There is no lifetime limit on the amount of the contribution room. The room and contributions will continue to grow each year and is not dependent on earned income.
  •  Assets within the TFSA can be used as collateral for loans, but there is no deductibility for any loans established to deposit to the TFSA.