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.
This summary gives you an idea how the TFSA works:
- Since 2009, any Canadian resident aged 18 and older can save up to $5,000 every year in a TFSA.
- Your contributions to a TFSA are not deductible for income tax purposes but the investment income, including capital gains, earned in your TFSA is not taxed, even when withdrawn.
- Your unused TFSA contribution room is carried forward and accumulates for future years.
- 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.
- Neither income earned in a TFSA, nor withdrawals, affect your eligibility for federal income-tested benefits and credits.
- You can provide funds to your spouse or common-law partner to invest in their TFSA.
- TFSA assets can generally be transferred to a spouse or common-law partner upon death.
- On the breakdown of a marriage or common-law partnership, any amount may be transferred directly from the TFSA of one party to the TFSA of the other.