YOUR GUIDE TO TAX-FREE SAVINGS ACCOUNTS

WHAT IS A TAX-FREE SAVINGS ACCOUNT (TFSA)?

Starting at the age of 18, all Canadians with a valid SIN number can open and contribute to a TFSA. Any amount added to the account and income gained is tax-free, but contributions are not income tax deductible (unlike RRSPs). Each year that the individual is eligible to contribute, there is a specified limit (in 2019, the limit is $6,000) and will be accumulated if you have remaining contribution room from previous years. If you contribute more than the limit, a tax will apply. The types of investments that are allowed in a TFSA is similar to an RRSP: cash, mutual funds, securities, guaranteed investment certificates, bonds, and certain shares of small business corporations.

HOW DO I OPEN A TFSA?

Banks, insurance companies and independent companies like MrInvestments.ca can all help you set up your TFSA. There are a few different kinds of accounts that you can set up: a deposit, an annuity contract, an arrangement in trust, or a self-directed TFSA where you manage your own investment portfolio. Interest rates and plans vary based on the issuer, so we recommend that you conduct some research to figure out which one is most suitable for your needs.

WHAT ARE THE BENEFITS OF OPENING A TFSA?

The main benefit is probably quite obvious – no tax on income earned within the account! This includes interest, capital gains, and/or dividends. Furthermore, unlike RRSPs, you can withdraw any amount from your TFSA at any time with no tax consequences, but you cannot re-invest it in the same year if you have already hit the contribution limit (the amount withdrawn will be added to the contribution room of the following year). If you are looking to withdraw money to invest it in a different issuer, you should ask your issuer to do it for you so that this reinvestment rule does not apply. Finally, your income-based benefits and credits will not be reduced due to income earned within your TFSA.

If you are interested in learning more, or about finding other ways that you can be saving tax on your earnings, book a free consultation with us at: www.MrTaxes.ca/meeting

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