Jean-François Hamel,  B.B.A.

Independent representative
Financial security advisor  
514 282-5356 1 866 665-0500, 25356

Tax-Free Savings Account (TFSA)

Save tax-free

Want to save money without having to worry about higher taxes? The Tax-Free Savings Account (TFSA) allows you to put money aside tax-free and withdraw it whenever you like, without tax implications. That’s a good deal, isn’t it?

The scoop on TFSAs

A TFSA allows taxpayers who are age 18 or more and who have a Social Insurance Number (SIN) to put money aside in eligible investment vehicles (such as a savings account or guaranteed investment certificate) and watch those savings grow tax-free throughout their lifetime. Taxpayers can use their TFSA savings for a variety of needs, such as to purchase a car, renovate a house or take a family vacation, without paying taxes.

How the TFSA works

Each year, you can transfer funds in a TFSA, up to a maximum amount determined by law,1 regardless of your earned income. TFSA contributions are not deductible for income tax purposes. TFSA returns (interest, dividends or capital gains) and withdrawals are tax-free.
For example, if you contribute $3,000 per year to your TFSA for five years, you will have saved $15,000, not to mention the returns. Need $10,000 to renovate your kitchen? You can withdraw the amount you need from your TFSA tax-free.
What’s more, the amounts you withdraw from your TFSA in a given calendar year actually increase your contribution room for the following calendar year. You can therefore re-contribute all or a portion of the amounts you withdrew from your TFSA, beginning in the year after your withdrawal. No limit applies to TFSA withdrawals.
Unused TFSA contribution room is carried forward and accumulates in future years. They are determined by the Canada Revenue Agency.
Important: Your annual contributions should not exceed your TFSA contribution limit. If they do, you will have to pay tax on the excess amount, which you will have to withdraw from your TFSA.

Other important features of the TFSA
  1. If you are receiving federal income-tested benefits such as Old Age Security or Employment Insurance benefits, or if you are eligible to receive federal incometested credits such as the Canada Child Tax Benefit or the Goods and Services Tax/Harmonized Sales Tax Credit, your eligibility to receive these benefits or credits is not affected by TFSA income or withdrawals.
  2. Upon death, the accumulated TSFA balance can usually be transferred tax-free.
  3. It is not necessary to set up a TFSA or file a tax return to earn contribution room.

Differences between a TFSA and an RRSP

  • Useful for meeting your financial needs at retirement.
  • The money you put in an RRSP is generally deductible from your income when you file your tax return and is intended to be left undisturbed as a long-term investment until you retire.
  • Whenever you withdraw money from your RRSP, the amount is added to your income and taxed at the applicable tax rate.
  • You need to be earning an income in order to have annual contribution room.
  • Useful for meeting specific needs during your lifetime.
  • The money you put into a TFSA is not deducted from your income for tax purposes.
  • Generally, returns earned in a TFSA are tax-free.
  • Because the TFSA is designed to enable you to save for short-term needs, you can withdraw the amount you want, when you want, tax-free; then, beginning in the year after your withdrawal, you can re-contribute all or a portion of the amount you withdrew, without reducing your contribution room.
  • You need not be earning an income in order to have annual contribution room.

Want to find out more? As a financial security advisor, I can explain all the finer points. Contact me today to schedule a meeting. I will be happy to give you all the information you need about TFSAs.

Make an appointment today!

1. The maximum contribution for 2013 is $5,500.