Tax Free Savings Accounts (TFSAs)

Let’s talk a little bit about a good thing—the Tax Free Savings Account (TFSA). It’s good because it’s a general savings vessel, where Canadians can accumulate tax-free investment income. Imagine saving money, that’s invested and earning interest, in an account that is not taxed? This is something everyone should take advantage of.

How it works is, anyone who’s 18 years and older can contribute $5000 annually to a TFSA account. You can earn investment income inside the account, tax-free; and although contributions are not tax deductible, the withdrawals from this account are tax-free.

If you’ve not contributed a full $5000 into the account, the contribution room is carried forward to future years. So for example, if your contribution this year is $2000, contributions up to $8000 can be made next year—that’s right, the remaining $3000 from this year, and the $5000 contribution room of next year equal to $8000. Another good thing: funds can be given to a spouse or common-law partner to invest in their TFSA, and of course there’s transfer between spouses/partners upon death.

It’s your choice what type of investment earning fund you put in the vessel; the choices include mutual funds, Guaranteed Investment Certificates (GICs), and bonds. One last good point gained for us is that the contributions, earnings inside, and withdrawals from the TFSA don’t affect our eligibility for federal credits and benefits such as Old Age Security, Guaranteed Income Supplement, and the Canada Child Tax Benefit.





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