In 2009, the Federal Government introduced the Tax-Free Savings Account (TFSA), describing it as “the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).”
The TFSA undoubtedly allows our clients to set money aside in eligible investment vehicles and to watch their savings grow tax-free throughout their lifetime. TFSA savings can be used for any purpose – to purchase a new car, take a vacation, renovate a house or even start a small business. Also, Canadians of all income levels and from all walks of life can reap the benefits.
Commonly asked questions about TFSA:
Who can contribute?
Since 2009, any Canadian resident aged 18 and older can contribute up to $5,000 every year in a TFSA. As of January 1st, 2013, the annual contribution limit was increased to $5,500.
Is there a limit to how much I can withdraw?
No, you can withdraw funds available in your TFSA at any time for any purpose – and the full amount of withdrawals can be put back into your TFSA in future years.
What happens if I over-contribute?
You can re-contribute all or portions of your withdrawals only if you have available TFSA contribution room. “If you over-contribute to your TFSA in the year, you will be subject to a tax of 1% on the highest excess TFSA amount in the month, for each month you are in an excess contribution position (TFSA).”
How to calculate TFSA contribution room
The TFSA contribution room is made up of:
- your TFSA dollar limit
- any unused TFSA contribution room from the previous year; and
- any withdrawals made from the TFSA in the previous year.
The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.
The annual TFSA dollar limit for the years 2013 and 2014 is $5,500.
Assuming you were of age and have never contributed to a TFSA, your contribution room would be $31,000.
If you have any questions, please contact Richard Rizzo, Tax Principal at (905) 633-6332 or Kelly Ross, Tax Manager at (905) 633-6335.