Tax-Free Savings Account (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.

Contributing to a TFSA

• The maximum contribution in 2010 is $5,000. In the future, the maximum will be indexed to inflation and rounded to the nearest $500 on a yearly basis.
• Any unused contribution room is carried forward indefinitely.
• Contributions are not tax deductible.
• Income, losses and capital gains are not included in taxable income.

Eligibility

• Any resident of Canada who is 18 or older except in provinces or territories where the age of majority is 19, and has filed an income tax return is eligible to contribute to a TFSA.
• 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 their own TFSA
• Unlike an RRSP, you can contribute to a TFSA even if you have no earnings from employment.

Withdrawal from a TFSA

• Withdrawals increase contribution room by the same amount in the following year.
• Eligibility for federal income-tested benefits and credits are not affected when you withdraw money from a TFSA (such as Canada child tax benefit, working income tax benefit, goods and services tax (GST) credit and old age security benefits).
• Withdrawals are not included in taxable income.
• Withdrawals are not taxable.
• Withdrawals can be made at any time and for any purpose.

To see how a TFSA can fit into your financial security plan, contact a financial security and investment representative near you.