The Federal Government introduced the Tax Free Savings Account (TFSA) allowing Canadians to save money for different purposes over thier lifetimes. This is the single most important vehicle since the introduction of the RRSP.
The TFSA will allow the taxpayer to set money aside in eligible investment vehicles and watch those savings grow tax-free. The money can be be withdrawn at any time to purchase what you wish and all withdrawal are also tax-free.
The following are some key points regarding the Tax Free Savings Account (TFSA):
- Canadians aged 18 and older can save up to $5000 every year in a TFSA.
- Contributions to a TFSA are not deductible for income tax purposes, but withdrawal are not taxable. (Unlike an RRSP).
- Unused contribution room can be carried forward to future years. For example: You contribute only $2000 in 2009, your contribution room in 2010 will be $8000. ($3000 + $5000).
- You can withdraw funds at any time for any purpose and you are not taxed on those withdrawals.
- Amounts withdrawn can be put back into the TFSA at a later date without reducing your contribution room. Example: You withdraw $20,000 from your TFSA, the following year the $20,000 is added to your contribution room.
- Neither income earned in the TFSA nor withdrawals will affect federal income-tested benefits & credits, such as the Working Income Tax Benefit (WITB), Child Tax Benefit (CTB), Old Age Security (OAS), etc.
For more info visit Canada Revenue Agency's site re:
TAX FREE SAVINGS ACCOUNT
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