A brand new tax-free savings account has arrived, giving you another way to save money and taxes too.
“As of January 1, 2009 you can open a Tax Free Savings Account, or TFSA,” says Chartered Accountant Rosa Maria Iuliano, Tax Partner, Collins Barrow Ottawa LLP.
“The TFSA allows Canadian residents who are over the age of 18 and have a valid Social Insurance Number (SIN) to invest up to $5,000 per year and not pay tax on any income earned in this account.”
TFSAs may be set up by any financial institution, including investment brokerage firms, insurance companies, mutual fund dealers, trust companies and chartered banks. Most investments that can currently be held in an RRSP are eligible, including certain savings accounts, guaranteed investment certificates (GICs), mutual funds, stocks and bonds. Income including interest, dividends and capital gains can be earned, and no tax applies.
“You can withdraw the funds tax-free when you need them,” Iuliano explains. “The TFSA pool is never reduced, even if you make a withdrawal, and any unused contribution room can be carried forward indefinitely.”
Withdrawals, excluding HYPERLINK "http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/glssry-eng.html" \l "Qualifyingtransfer" qualifying transfers made from your TFSA during the year, will be added back to your HYPERLINK "http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/ctbtn/rm-eng.html" TFSA contribution room at the beginning of the following year.
TFSA contributions are made with after-tax dollars and in some cases will be more beneficial than making RRSP contributions.
Brought to you by the Institute of Chartered Accountants of Ontario.
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The Institute of Chartered Accountants of Ontario is the qualifying and regulatory body of Ontario’s 33,000 Chartered Accountants and 5,000 CA students. Since 1879, the Institute has protected the public interest through the CA profession’s high standards of qualification and the enforcement of its rules of professional conduct. The Institute works in partnership with the other provincial Institutes of Chartered Accountants and the Canadian Institute of Chartered Accountants to provide national standards and programs that are used as examples around the world. </em>
