Tax-Free Savings Accounts (TFSA) have been hailed as the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP)¹.

TFSA grows tax-free
If you are a resident of Canada and are at least 18 years of age, you can contribute up to $5,500 per year to a TFSA and then watch your savings grow without being subject to tax throughout your lifetime. If you don’t plan to contribute to a TFSA right away, your unused contribution room will accumulate year after year. When you decide to withdraw money from your TFSA, the full amount (including any growth in your investments) is yours to keep, tax free. Plus, the amount you’ll be able to contribute to a TFSA the next year will go up by the full amount of your withdrawal. There’s also good news for anyone who receives federal income-tested benefits and credits such as Old Age Security – your eligibility for these benefits won’t be affected by money you keep in or withdraw from your TFSA.

The power of flexibility
A TFSA provides you with several options for use in your personal financial plan. For instance, you could choose to use a TFSA to save for short term or long-term goals or both, such as:

• Reduce taxes on your non-registered investments,
• Complement your retirement savings,
• Enhance education savings beyond RESPs,
• Save for a new car, cottage or dream vacation,
• Set aside money for a down payment on a new home or to start a small business,
• Create a portfolio of income-producing investments that won’t impact your eligibility for income-tested benefits and credits such as OAS,
• Split income with a spouse to minimize taxes.

Your guide to the Tax-Free Savings Account (TFSA)

Who is eligible?
Canadian residents, 18 years of age or older.

What is the contribution limit?

• $5,500 per person per year ($5,000 per person per year prior to 2013).
• Contribution room accumulates and carries forward.
• Withdrawals from a TFSA increase contribution room for the following year.
• Contributions start at age 18 and continue past age 71 (unlike an RRSP).

What are the main tax considerations?

• Contributions grow and can be withdrawn at any time and for any purpose without incurring tax.
• You are not taxed on interest, dividends or capital gains earned inside the TFSA.
• Withdrawals from a TFSA are not considered to be income and do not impact your eligibility for other Federal government programs.
• Contributions are not tax-deductible for income tax purposes.

What can I put into my TFSA?
A TFSA is more than just a savings account. You can contribute a variety of investments including:

• Mutual Funds
• Money market funds
• Cash deposits
• GICs
• Publicly traded securities
• Government and corporate bonds

Who can benefit from a TFSA?
All Canadians;

• age 18 and over,
• of any income level, and
• with savings goals that are short-term, long-term or both.

There are many other situations where a TFSA may be an effective alternative. You may also be wondering about the difference of contributing to a TFSA, an RRSP, an RESP or paying down your mortgage. Before making any changes to your plan, be sure to speak to your current planner to take a close look at your personal circumstances and discuss the best strategies for you and, if I can be of assistance, I would be happy to help.

¹”Budget 2008: Responsible Leadership, Tax-Free Savings Account”, Government of Canada, February 26, 2008

Christina Gilbert
Investors Group Financial Services Inc.
101 – 4400 Chatterton way, Victoria BC V8X 5J2
Phone (250) 727-9191 ext.501
Fax (250) 727-3222
Email Christina

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