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1. What is the Tax-Free Savings Account?

A Tax-Free Savings Account (TFSA) is a new registered account introduced by the Federal Government in the 2008 Budget. Investment income and capital gains in the account will grow tax-free to help you save for different purposes throughout your lifetime.

2. Who is eligible to open a TFSA?

Any Canadian resident who is 18 years of age or older will begin to accumulate contribution room in 2009. However some restrictions apply to the types of products that can be held in a TSFA.

3. What can a TFSA be used for?

TFSA can be used to save for a variety of short-term and long-term goals. Short-term goals, like saving for a car and long-term goals, like saving for a home or retirement.

4. What kind of investments can you hold in a TFSA?

A TFSA would generally be permitted to hold the same investments as a registered retirement savings plan (RRSP), such as:

  • GIC
  • Term Deposit
  • Savings Account
  • Mutual Funds
  • Stocks
  • Bonds
  • 5. How much am I allowed to contribute per year?

    You can contribute up to $5,000 each year. With inflation, your contribution limit will increase in $500 increments (subject to government guidelines).

    6. What happens if I contribute more than my contribution room?

    Similar to an RRSP, excess contributions to a TFSA above and beyond the legislated annual contribution limit will be subject to a 1% per month penalty tax by the Canada Revenue Agency (CRA) on your excess contribution amount until withdrawn.

    7. If I am unable to contribute in a given year, will I be able to use my unused contribution room in a future year?

    If you are eligible, you will accumulate contribution room each year – even if you have earned no income. Your unused contribution room can be carried forward indefinitely. There is no limit on how much contribution room you can accumulate. Also, TFSA contributions are in addition to any RSP contribution room you may have.

    8. Would contributions and withdrawals have any impact on my taxes and income-tested benefits?

    Neither income earned in your TFSA, nor withdrawals, will affect your eligibility for types of benefits from the Federal Government such as the Canada Child Tax Benefit, Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) or credits such as the Age Credit.

    How much money can I contribute to my TFSA in 2009?

    Each year you can contribute an amount up to your legislated annual contribution limit for the year. Contribution room in a TFSA will be determined by the Canada Revenue Agency (CRA) for each eligible individual who files an annual income tax return.

    Your contribution room would be made up of three amounts:

    • First: Each year you will be allocated a contribution limit of at least $5,000 (this annual amount will be indexed to inflation and rounded to the nearest $500 on a yearly basis).
    • Second: Any withdrawals made during the year would be added in kind to the contribution room for the following year.
    • Third: Any unused contribution room from the previous year would be added to the contribution room for the new year.

    For example (assuming no indexing):

    • In 2009 you will be allocated up to $5,000 as a TFSA contribution limit. If you only contribute $2,000 an amount of $3,000 would be carried forward to 2010.
    • Your contribution room for 2010 would then be $8,000 ($5,000 new room for 2010 plus $3,000 remaining room from 2009).

    9. Are there any restrictions on withdrawals?

    No, you can withdraw any amount from the account for any reason.

    That being said, it is important to bear in mind that the same restrictions apply to a TFSA investment product as any other GIC or Term Deposit. So if the TFSA is a non-redeemable 2 year GIC the funds may not be withdrawn until the GIC matures.

    10. If I withdraw money from my TFSA, can I re-contribute this withdrawn amount later on in the tax year?

    If I withdraw money from my TFSA, can I re-contribute this withdrawn amount later on in the tax year?

    Withdrawals you make in the current calendar year will be added to your unused contribution room. Amounts can’t be re-contributed until the following calendar year or later.

    11. Can I use my TFSA assets as security for a loan?

    Yes. Unlike RRSPs which cannot be used as collateral for a loan, assets within your TFSA can be used as collateral for a loan.

    12. Can I open a joint TFSA account?

    No. Similar to registered retirement accounts, such as RSPs, government rules only permit individual accounts.

    13. Can I give my spouse or common-law partner (CLP) funds to contribute to a TFSA?

    No. Unlike a spousal RRSP which allows one person to make contribution’s on their spouse/CLP’s behalf, a TFSA may only be held in the name of the planholder, and only this person can make contributions. However, money you give to your spouse to contribute to his or her TFSA will not be subject to CRA’s income attribution rules.

    14. How will I know what my TFSA contribution room is for a given year?

    Canada Revenue Agency (CRA) will track your contribution room. CRA intends to report this amount to individuals on their Notice of Assessment and through the “My Account” function on the CRA web site.

    15. Is there a lifetime contribution limit?

    There will be no lifetime limit on the amount of your contributions. If you are eligible, you will accumulate $5,000 every year, which will increase in $500 increments with inflation.

    16. Do I have to have a particular income level to take advantage of a TFSA?
    There is no minimum or maximum income level. Every eligible person will accumulate contribution room each year starting in 2009.

    17. If I pass away, what happens to the income and gains in my TFSA?

    Generally, earnings that accrue in the account after the account holder’s death will be taxable, while those that accrued before death would remain exempt.

    However, it would be possible to maintain the tax-free status of the earnings if the account holder names his or her spouse or common-law partner as the successor account holder.

    Alternatively, the assets of the deceased’s TFSA could be transferred to the TFSA of the surviving spouse or common-law partner without any impact on the survivor’s existing contribution room.

    18. If there is a breakdown of a marriage or common-law partnership, what will happen to my TFSA?

    TFSA assets may be transferred between spouses or common-law partners on marriage or relationship breakdown but the transfer will not reinstate contribution room of the transferring spouse or reduce the contribution room of the receiving spouse.

    19. Can a non-resident of Canada open a TFSA?

    No. TFSAs can only be opened by Canadian residents.

    If you become a non-resident, you would be allowed to maintain your TFSA, and you would not be taxed on any earnings in the account or on withdrawals; however, you would not be allowed to contribute, and no contribution room would accrue for any year throughout which you are a non-resident.

    20. What is the main benefit of saving in a TFSA?

    A TFSA allows you to set money aside in eligible investments and watch those savings grow tax-free throughout your lifetime. You can withdraw amounts for any purpose. There are no restrictions.

    Because capital gains and other investment income earned within a TFSA will not be taxed, an individual contributing $200 a month to a TFSA for 20 years will accumulate about $11,045 more in savings than if the investment had been held in a taxable savings vehicle (i.e. an unregistered account).


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