TFSAs

TFSA - Tax-Free Savings Account

  • The annual TFSA dollar limit for 2017 is $5,500
  • A Tax Free Savings Account (TFSA) is a registered plan that allows your investments and savings to grow tax-free throughout your lifetime
  • TFSAs are available to Canadian residents age 18 and older, who have a Social Insurance Number (SIN)
  • No annual fees

Who can benefit from a TFSA?

  • All Canadians with a valid Social Insurance Number who are at least 18 years of age may hold a TFSA
  • Seniors who must withdraw from RRSP savings-there is no maximum age for holding a TFSA
  • Those wishing to 'park' their money before committing to another type of investment
  • Anyone who wishes to save and keep what they earn!

The Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn. Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not deductible.

TFSA contribution room

Your TFSA contribution room is the maximum amount that you can contribute to your TFSA.

Starting in 2009, TFSA contribution room accumulates every year.

You will accumulate TFSA contribution room for each year even if you do not file an Income Tax benefit return or open a TFSA.

Contribution Limit Year
$5,500 2017
$5,500 2016
$10,000 2015
$5,500 2014, 2013
$5,000 2012, 2011, 2010, 2009
$52,000 Total for years 2009-2017
  • Don't overdo it. Take care not to invest beyond your own contribution limit. For each month that an over-contribution remains in your TFSA, Canada Revenue Agency (CRA) will charge a penalty tax of 1% per month on the excess amount. Just be sure that you don't contribute more than your yearly limit allows.
  • Investment income earned by, and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years.

How the TFSA Works

  • Contribution limit is not tied to income
  • Contributions are not tax deductible
  • Investment income earned in a TFSA is not taxed - even when withdrawn
  • Your unused TFSA contribution room is carried forward and accumulates for future years.
  • You can withdraw funds available in your TFSA at any time for any purpose - and the full amount of withdrawals can be put back into your TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
  • Neither income earned in a TFSA nor withdrawals affect your eligibility for federal income-tested benefits and credits.
  • You can provide funds to your spouse or common-law partner to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.

Unused Contribution Room

  • If you don't maximize your contribution in a given year, the remaining 'contribution room' accumulates and can be used in future years
  • Unused contribution room is carried forward indefinitely, so you can 'catch-up' in future years
  • You can take money out of your TFSA. The withdrawal will increase your contribution room for the following year

Example: In 2009, Anna invests $5,000 in a TFSA. Later that year, she withdraws $3,000 for a vacation, but her plans change and she is not able to go. Since Anna has no unused TFSA contribution room left, she will have to wait until 2010 to deposit the $3,000 back into her TFSA.

Withdrawals

  • You may withdraw from your TFSA, but keep in mind that you're bound to the terms of your investment product
  • Withdrawals are not reported as taxable income and are not subject to income tax
  • Withdrawals will not impact eligibility for federal income tested benefits and credits such as OAS, GIS, Age Credit, GST, EI, child-tax benefit, or working income tax benefit.

Restrictions and Transfers

  • The amount inside a TFSA is transferable to another TFSA owned by you.
  • A person may hold more than one TFSA, but must abide by the annual contribution limit.
  • TFSAs are individual investments and are not able to be set up as joint investments.
  • Spousal contributions are not permitted.
  • You can provide funds to your spouse or common-law partner to invest in their TFSA.
  • A TFSA is transferable to a spouse/common-law partner on the break-down of a relationship or on the death of a holder (must be named as successor holder on the application).

Benefits for Seniors

The TFSA provides seniors with a tax-free savings vehicle to meet ongoing savings needs, even after they reach age 71 and are required to convert their registered retirement savings (RRSP) into a retirement income vehicle.

How Is a TFSA Different From a Registered Retirement Savings Plan (RRSP)?

An RRSP is primarily intended for retirement.

Both plans offer tax advantages by allowing you to accumulate investment income tax-free within the plan or the account, but they have key differences.

  • Contributions to an RRSP are deductible and reduce your income for tax purposes. In contrast, your TFSA savings contributions are not deductible.
  • Withdrawals from an RRSP are added to your income and taxed at current rates. Your TFSA withdrawals and growth within your account are not included in your income-they are tax-free.

Unlimited Deposit Insurance Coverage!

The combined money you have in eligible TFSA contracts is automatically covered in FULL by the Deposit Insurance of Ontario (DICO), with no maximum limit. Deposit Insurance is backed by provincial legislation and is part of a comprehensive protection program in all Ontario credit unions.*

(* The Deposit Insurance of Ontario (DICO) does NOT INSURE any of the following: Member shares and investment shares issued by the credit union; Mutual Funds; Stocks, bonds and debentures; Treasury Bills; Foreign Currency deposits; Contents of Safety deposit boxes; Securities held for safekeeping.)

Further information on DICO deposit insurance coverage can be obtained by contacting: Internet site: www.dico.com; Toll free number: 1-800-268-6653; Tel. 416 325 9444; Fax: 416.325.9439

 

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