About TFSAs
What is a Tax-Free Savings Account (TFSA)?
Who is eligible for a TFSA?
When can I open a TFSA?
How is a TFSA different from an RSP?Contributions
How much can I contribute?
What if I can’t contribute the full $5,000?
How will I know what my contribution limit is for each
year?
Can I contribute more than my limit in a particular year?
Can I make spousal contributions to my spouse’s TFSA?Withdrawals
When can I withdraw my money?
Do I have to pay income tax on my withdrawals?
What can I spend the money on?
Once I’ve withdrawn my money, is that contribution room
lost?
Are there any restrictions on withdrawals?Taxation
Do I have to pay tax on my money?
Are my contributions tax-deductible, like RSP contributions?Investments
What kind of investments can I hold in my TFSA?
About TFSAsQ: What is a Tax-Free Savings
Account (TFSA)? A: A Tax-Free Savings
Account (TFSA) is a new kind of registered account recently
announced by the government. Through a TFSA, you can put your
savings into eligible investments and not pay tax on the investment
income you earn. Q: Who is
eligible for a TFSA? A: The idea behind TFSAs
is to make the benefits of tax-free savings available to as many
Canadians as possible. For that reason, TFSAs are available to
every Canadian resident who is 18 years of age or older and has a
Social Insurance Number (SIN). However, at TD, you must have achieved age
of majority in order to open a TFSA. So, if you live in British
Columbia, Newfoundland and Labrador, Nova Scotia or New Brunswick,
then you can’t actually open a TFSA until you are 19,
which is the age of majority in those provinces. However, you will
accumulate contribution room from the time you are 18. Q: When can
I open a TFSA? A: As of January 2009,
you’ll be able to open a TFSA through TD Waterhouse. Q: How is a TFSA
different from an RSP? A: An RSP is designed
specifically to provide you with income after you retire. Your
contribution limit is based on your income and the contributions
you make are tax-deductible, but you do pay tax on the money when
you receive it as income. A TFSA is not designed specifically for
retirement, but to help you save money for a wide range of goals.
The amount you can contribute is not based on your income and your
contributions are not tax-deductible. You can withdraw your money
any time you want it, and you don’t pay tax on those
withdrawals. You also don’t lose contribution room when
you make a withdrawal – you can recontribute that amount
to your TFSA the following year or any year after that.
ContributionsQ: How much can I
contribute? A: As of January 2009, you
can contribute up to $5,000 a year to your TFSA. However, that
contribution limit is indexed to inflation, which means that it
will rise with the cost of living. Q: What if I
can’t contribute the full $5,000? A: You can carry forward
any uncontributed amounts into future years indefinitely. So, for
example, if you contributed only $2,000 in 2009, in 2010, you could
contribute up to $8,000 (the $5,000 limit for 2010, plus the $3,000
you had left over from 2009). If, in 2010, you had only $5,000 to
contribute, you could carry the $3,000 left over from 2009 to 2011
and on through the years until you use it. Q: How will
I know what my contribution limit is for each year? A: Every year, the
government will calculate how much TFSA contribution room you have
available. You will be informed of your contribution limit when you
receive your T1 Notice of Assessment. Q: Can I
contribute more than my limit in a particular year? A: If you contribute more
than your contribution limit, you will pay a penalty of 1% per
month on the excess amount. Q: Can
I make spousal contributions to my spouse’s TFSA? A: No, you can’t
contribute directly to your spouse’s TFSA as you can with
a spousal RSP. However, you can give your spouse money, which they
can then contribute to their own TFSA. Any income your spouse earns
on the money in their TFSA is theirs and will not be attributed
back to you.
WithdrawalsQ: When can I withdraw my
money? A: You can withdraw funds
from your TFSA any time you want – you don’t
have to reach a certain age before you withdraw your money. Q: Do I
have to pay income tax on my withdrawals? A: No, you don’t
have to pay tax on the amounts you withdraw. Because TFSA withdrawals don’t
count as taxable income, they don’t affect Federal
income-tested benefits or tax credits you may receive, including
the Canada Child Tax Benefit, the Working Income Tax Benefit, the
Goods and Services Tax Credit and the Age Credit. TFSA withdrawals
also won’t reduce benefits based on your income level,
such as Old Age Security, the Guaranteed Income Supplement and
Employment Insurance benefits. Q: What can I
spend the money on? A: Anything you want. You
could wait until you retire and use it to supplement retirement
income you have from pensions, RSPs or other sources, but you can
also use it for short-term savings goals like a new car or a
vacation, or for needs that arise suddenly like repairs to your
home. Q: Once
I’ve withdrawn my money, is that contribution room
lost? A: No, you never lose your
contribution room – in fact, you can recontribute amounts
you have withdrawn. You have to wait until the next year to
recontribute, but you can carry forward the recontribution room
indefinitely.
For example, say you contribute $5,000 to your TFSA in January 2009
and another $5,000 in January 2010. Then, in the summer of 2010,
you withdraw $3,000 to pay for some repairs to your home. You
can’t recontribute that $3,000 in 2010, but in 2011 it
will be added to your contribution room again, meaning you could
contribute up to $8,000 in 2011.
Q:
Are there any restrictions on withdrawals? A: No, you can take out as
much of your money as you want, whenever you want, and use it for
anything you choose.
TaxationQ: Do I have to pay tax on my
money? A: No, you don’t
pay any tax on the investment income you earn in the account, and
you don’t pay income tax on the amounts you withdraw. Q: Are my contributions
tax-deductible, like RSP contributions? A: No, you can’t
deduct contributions to your TFSA from your income as you can with
your RSP contributions.
InvestmentsQ: What kind of investments
can I hold in my TFSA? A: You can hold many of
the same investments you hold in your RSP in your TFSA, including
mutual funds, GICs, stocks and bonds. Note: The above information about the Tax-Free Savings Account
is based on the information currently available from the Canadian
government. To learn more or to check for updates, visit the TFSA information page on the Canada Revenue Agency
website. | 
RSP/TFSA
comparison chart
Business Succession Planning Guide