TFSA

TFSA has been available in Canada since Jan1, 2009. TFSA is a flexible, general-purpose savings vehicle that allows you to make contributions each year and allowing the investment growth to accumulate and be withdrawn tax-free.

Every Canadian resident with a social insurance number and who has reached the age of 18 years can open a TFSA. There is an annual dollar limit for TFSA contributions as determined by CRA.

You can have more than one TFSA, including TFSAs with other financial institutions. The important thing to remember is how much you’ve contributed in total, and make sure you don’t exceed your contribution room. There is a penalty of 1% per month on an excess TFSA contribution until a withdrawal of the excess is made.

However, unlike an RRSP, you can’t claim a tax deduction for contributions you make to a TFSA and your withdrawals are added back to your unused contribution room for the following year. The TFSA account provides a wide range of investment options similar to those available in an RRSP including GICs, stocks, bonds, mutual funds, segregated funds.

Watch your money grow tax free!

The TFSA account provides a wide range of investment options similar to those available in an RRSP including GICs, stocks, bonds, mutual funds, segregated funds.

Income earned in a TFSA and withdrawal from an account does not affect eligibility for federal income-tested benefits, such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS). At retirement, many Canadians rely on income from a pension plan or Retirement Savings Plan. An alternative source of tax-free income like a TFSA can be beneficial.

A TFSA can name a successor holder to continue to receive benefits of the account if the owner dies. If the spouse is named inheritor of TFSA, he/she can roll the account into his/her personal account without affecting unused contribution room, after the account owner passes.

TFSA or RRSP

Simple rule, For retirement savings, generally those who earn more than $50,000 should invest using RRSPs. While TFSAs are usually preferable for both lower earners, as well as those who think they may need to access their funds before retirement.

Grow your Savings with compound interest, tax free under TFSA.

You can benefit from compounding by investing under Segregated Funds. If you hold any of these investments within a TFSA, you may be able to eliminate the tax you pay on your earnings.

Example -

You have $20,000 to invest for 5 years. You have a high-risk tolerance so you decide to invest this money in Seg Funds. Your investment gains 5% in the first year, loses 1% the second year, in the third year it gains 8%, fourth year gain 4%- and fifth-year gain 6%. The investment pays you income each year in the form of distributions. If you decide to reinvest your distributions into more units, here’s what you’d gain or lose each year:

Year Starting balance $20,000

Value at start of year

Gain (loss)

Investment value at end of year

$20,000

$1000 (5%)

$21000

$(210) (-1%)

$20790

$1663.20 (8%)

$22453.20

$898.13 (4%)