Tax Free Savings Accounts allow Canadians to save money on a tax-exempt basis for any financial goal: a long-term goal such as retirement or a house or a short-term goal such as a car or a vacation.

Start date: TFSAs came into existence on January 1, 2009.

Who’s eligible:
Canadian residents age 18 or older. (Note that a Social Insurance Number must be provided to open and administer the account.)

Contribution limit:
From 2009 to 2012, the contribution limit is $5,000 per year. For 2013 to 2015 the limit is $5,500. Unused contribution room can be carried forward to future years. Any amounts withdrawn in one year will also be added to contribution room in the following year.

Over-contribution penalty:
The Canada Revenue Agency will charge a penalty of 1% per month based on the actual over-contribution amount.

Contributions to a TFSA cannot be deducted for income tax purposes.

Tax on investment income:
None. Investment income (including capital gains) earned in a TFSA is not subject to tax.

Tax on withdrawals:
None. Investors can withdraw funds from a TFSA at any time for any purpose and will not be taxed or otherwise penalized.

Eligibility for federal income-tested benefits and credits:
Income earned in a TFSA and withdrawals from a TFSA will not affect eligibility for benefits and credits such as the Canada Child Tax Benefit, Employment Insurance benefits, Guaranteed Income Supplement, Old Age Security benefits, Age Credit and Goods and Services Tax Credit.

Contributions to TFSAs:
Only the TFSA holder or his or her spouse can contribute to a TFSA. Contributions made by an individual into a spouse’s TFSA are not subject to the income attribution rules. Upon the death of the TFSA holder, the assets can be transferred to the surviving spouse or common-law partner without affecting the contribution room of the surviving spouse.

Contributions to the TFSA of an adult child by his or her parents, is not permitted.
Tracking contribution limits: Each year, the government determines and advises individuals of their TFSA contribution limits for that tax year.

To find out how a TFSA can fit into your Financial Plan, please contact us.
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