Tax Free Savings Accounts

TFSA means you save on taxes!

But how much can you save?

Here is a common scenario: If you contribute the maximum ($5,000) and assume no growth and a 4% return, NO taxes are due on $2,000 of investment income in that year (and the next, and the next, etc.)

What is a TSFA? It's an account where contributions are made with after-tax dollars but withdrawals are tax-free and any withdrawal leaves an equal amount of contribution room (but can only be topped up to the $5,000 limit in the next calendar year.)  This means you can save for an automobile, education, a house or a vacation. Plus there are no "taxes" to be paid on the interest or income earned from your TFSA investment.

There are no limits on what you can use it for - the only limit is that the maximum amount in a TFSA in any one year is $5000. Every year!

  • Never pay tax on the interest, dividend or capital gains the deposits earn.
  • Invest in any of the same types of investments that qualify for RRSPs, including term deposits, segregated funds, securities, etc.
  • Withdraw funds for any reason without penalty.
  • Contribute funds at any time (but only if you want to)

If you have questions about whether you should have a TFSA or RRSP (or both) or pay down your mortgage it really depends on your financial situation; talking to us will help you decide what's right for you!

It's the most flexible financial program the Canadian government has ever offered to ordinary Canadians. It has all the benefits of a tax shelter (similar to an RRSP or RESP) but without any of the restrictions.

5 TFSA strategies that make your money work for you

Strategy #1 — Transfer of existing term deposits or GICs:

Regardless of your age, if you have any funds coming up for maturity in term deposits or GICs, you should transfer up to $5,000 of these funds into a TFSA in 2009.

If funds permit, you should do it again in 2010 and every year thereafter.

Strategy #2 — Transfer of Funds currently in a bank account

If you have funds in a bank savings account anywhere that can be invested for 6 months or more, you should also consider transferring up to $5,000 into a TFSA immediately. This will eliminate those  tax slips you receive that you have to report on your income tax return.

Strategy #3 — Income splitting with spouse

Assume two spouses (or partners) are in a situation where one earns substantially more income than the other It could then make sense for the higher income earner to put $5,000 into a TFSA in the name of the lower income spouse.

There will be no adverse tax issues (i.e. no “attribution”) with this strategy and the benefit is that the investment income that would have previously been earned by the high rate taxpayer is transferred to the lower rate taxpayer thereby achieving income tax savings

Strategy #4 — Saving for an automobile, house, vacation, wedding or whatever you want to save for!

Using a TFSA is an ideal way to start a program to allow you to save up for any goal that you might choose to establish.You can accumulate towards your goal and pay no income tax on the amounts your deposits are earning.

Strategy #5 — For Seniors it reduces OAS clawback

For any seniors whose incomes exceeds approximately $65,000, you are subject to “clawback” of your Old Age Security (OAS) benefits and could be negatively impacted by other “income tested” government benefits.

Any funds put into a TFSA will not generate taxable income and will therefore help to reduce your exposure to “clawback” issues.

Where there are two spouses, opening a TFSA for each spouse and then putting funds in each year will further help to reduce the “clawback” exposure.

Interested in Exploring YOUR Options for a Tax-Free Savings Account?

For more information and a free consultation, please click here to contact us today!