Tax Free Savings Account
Introduced by the Federal government in the 2008 Budget, the TFSA is a new registered savings account that allows investments to grow without ever being taxed.
In 2009, any Canadian over age 18 is able to contribute $5,000 per year into the TFSA, which will be indexed to inflation for future years. As well, any unused room from previous years carries forward indefinitely.
Here is some information on how a TFSA works:
- Canadians age 18 and up can save up to $5000 every year in a TFSA
- The contributions to the TFSA are not tax-deductible and any investment returns earned within the TFSA are not taxed either, even when withdrawn
- Withdrawals from the TFSA do not affect one's income for income tax purposes, funds may be withdrawn at any time for any purpose
- Neither income earned in a TFSA nor withdrawals will affect eligibility for federal tax credits or income-tested benefits such as Old Age Security (OAS), the Canada Child Tax Benefit or the Guaranteed Income Supplement (GIS).
- Any withdrawals from the TFSA can be re-deposited into the account in future years without affecting future TFSA eligibility
A TFSA can also be used for other tax saving purposes such as income splitting.