Tax-Free Savings Account (TFSA)
In 2009, the Canada Revenue Agency (CRA) introduced the Tax-Free Savings Account (TFSA). This is another savings account, which is governed by the Income Tax Act (ITA). You can contribute to a TFSA and the investment earnings on your monies will grow tax free. You must be 18 years of age and have a valid Social Insurance Number (SIN). This is the perfect account for saving as you can contribute your maximum amount each year, your investment earnings are tax sheltered, and you can make withdrawals at anytime without paying tax on the withdrawals
In 2009, the annual contribution limit was set at $5,000. This amount was increased to $5,500 in 2013. The contribution limit for 2014 remains at $5,500. Any withdrawals you make in a year will be added back to your contribution room the following year. You can elect to make your contributions on a regular basis such as monthly withdrawals from your bank account, or in a lump sum. Your contributions to a TFSA are not tax deductible, you do not need to have earning income, and they do not affect how much you can contribute to an RRSP. However, it is very important that you ensure that you do not over contribute to your TFSA at any time during the year. If you over-contribute, you will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount remains in your account.
You can invest your contributions in any of the available investment options that are provided by your financial institution, e.g., Guaranteed Accounts, Bonds, Mutual Funds, etc. Banks, Trust Companies, Credit Unions, and Insurance Companies all sell this product.
You never have to retire under a TFSA. You can withdraw your account balance at anytime, or transfer your account to another TFSA. If you are transferring your account, it would be handled as a direct transfer by the financial institutions, or at arms length as you would not be actually touching the monies.
You can name anyone as your Beneficiary, and if you should die, a successor Account Holder can assume the TFSA account. Your spouse will have the option of transferring the account balance to their own TFSA, or they can receive a cash payment. Other beneficiaries must receive a taxable cash payment.
Your Employer may offer a Group TFSA. If they do they will determine the eligibility for joining the plan, whether or not they will be making any contributions on your behalf, any withdrawal restrictions, and the investments available. Any contributions that they make to your account, you would immediately own. Joining a Group Plan is one of the easiest ways to save, as your contributions would be deducted from your pay and deposited into your account. Most employers still remit their contributions on a monthly basis, but more are starting to do it every time someone is paid, e.g., semi-monthly, or bi-weekly.
In 2009, the annual contribution limit was set at $5,000. This amount was increased to $5,500 in 2013. The contribution limit for 2014 remains at $5,500. Any withdrawals you make in a year will be added back to your contribution room the following year. You can elect to make your contributions on a regular basis such as monthly withdrawals from your bank account, or in a lump sum. Your contributions to a TFSA are not tax deductible, you do not need to have earning income, and they do not affect how much you can contribute to an RRSP. However, it is very important that you ensure that you do not over contribute to your TFSA at any time during the year. If you over-contribute, you will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount remains in your account.
You can invest your contributions in any of the available investment options that are provided by your financial institution, e.g., Guaranteed Accounts, Bonds, Mutual Funds, etc. Banks, Trust Companies, Credit Unions, and Insurance Companies all sell this product.
You never have to retire under a TFSA. You can withdraw your account balance at anytime, or transfer your account to another TFSA. If you are transferring your account, it would be handled as a direct transfer by the financial institutions, or at arms length as you would not be actually touching the monies.
You can name anyone as your Beneficiary, and if you should die, a successor Account Holder can assume the TFSA account. Your spouse will have the option of transferring the account balance to their own TFSA, or they can receive a cash payment. Other beneficiaries must receive a taxable cash payment.
Your Employer may offer a Group TFSA. If they do they will determine the eligibility for joining the plan, whether or not they will be making any contributions on your behalf, any withdrawal restrictions, and the investments available. Any contributions that they make to your account, you would immediately own. Joining a Group Plan is one of the easiest ways to save, as your contributions would be deducted from your pay and deposited into your account. Most employers still remit their contributions on a monthly basis, but more are starting to do it every time someone is paid, e.g., semi-monthly, or bi-weekly.
