Tuesday, January 06, 2009

Tax Free Savings Account in Canada

SAVING JUST GOT A WHOLE LOT EASIER

On Friday, January 2, 2009, Minister of Finance Jim Flaherty and Minister of National Revenue and Minister of State (Agriculture) Jean-Pierre Blackburn welcomed the availability of the new Tax-Free Savings Account introduced by the Government of Canada in the 2008 Budget.

Saving just got a whole lot easier

The new Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).

How the Tax-Free Savings Account Works

  • Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA.
  • Investment income earned in a TFSA is tax-free.
  • Withdrawals from a TFSA are tax-free.
  • Unused TFSA contribution room is carried forward and accumulates into future years.
  • Full amount of withdrawals can be put back into the TFSA in future years.
  • Choose from a wide range of investments options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
  • Contributions are not tax-deductible.
  • Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
  • Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.

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