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TFSA Benefits

Tax Free Saving Account Benefits

The TFSA is the most significant government savings program since the introduction of the Registered Retirement Savings Plan (RRSP).

Canadians that are eligible to open and benefit from a TFSA account meet the following two criteria:

1. They have filed a tax return

2. They are 18 years of age or older

There are a number of benefits that affect a wide range of Canadians, here are some of the main benefits of the TFSA.

 

Benefits for Low- and Modest-Income Canadians

  • Joseph and Mary, a modest-income couple, expect to receive the Guaranteed Income Supplement (GIS) in addition to Old Age Security and Canada Pension Plan benefits when they retire. They earn $2,000 a year in interest income from their TFSA savings. Neither this income, nor any TFSA withdrawals, will affect the GIS benefits (or any other federal income-tested benefits and credits) they receive. If this $2,000 were earned on an unregistered basis, it would reduce their GIS benefits by $1,000.
    No Impact on Income-Tested Benefits <
  • Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested benefits and credits, such as the Guaranteed Income Supplement and the Canada Child Tax Benefit. This will improve incentives for people with low and modest incomes to save.
  • It is estimated that, in the first five years, over 75 per cent of the benefits of TFSA savings will go to individuals in the two lowest income tax brackets.

Benefits of Saving in a TFSA

Because capital gains and other investment income earned in a TFSA will not be taxed, a person contributing $200 a month to a TFSA for 20 years will enjoy additional savings of $11,045 compared to saving in an unregistered account.

A Flexible Account for a Lifetime of Savings

Not everyone is able to save each and every year.

Those who cannot contribute $5,000 in a given year will be able to carry forward their unused contribution room to future years.

In addition, Canadians may want to use their savings—to buy a new car or a cottage, or start a small business—and the full amount of withdrawals can be put back into the TFSA in the future.

Couples often save and plan together, so Canadians can contribute to their spouse’s or common-law partner’s TFSA, depending on the spouse’s or partner’s available room.

Benefits for Seniors

The TFSA will also provide seniors with a tax-free savings vehicle to meet ongoing savings needs, something they have only limited access to once they reach age 71 and are required to begin drawing down their registered retirement savings.

Seniors are expected to receive one-half of the total benefits provided by the TFSA.

 
 

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