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Tax-Free Savings Account (TFSA)

What is a Tax-Free Savings Account?

The Tax-Free Savings Account (TFSA) is probably the single most important savings vehicle innovation since the introduction of the Registered Retirement Savings Plan (RRSP). TFSAs combine the flexibility of non-registered investments with some of the tax advantages of registered plans.

In some ways, the TFSA mirrors the RRSP as both provide investors with tax advantages. Like RRSPs, there is an annual contribution limit for TFSAs, but the contributions are not deductible. Unlike RRSPs, the contributions and income that accumulate in a TFSA are not taxable on withdrawal.

The key advantage of a TFSA is that your accumulated savings grow tax sheltered and without restrictions as to how much you wish to withdraw or when you wish to make a withdrawal. This provides an extremely interesting new alternative to non-registered plans.

What advantages does a TFSA offer?

  • TFSAs are suitable for both retirement and other types of savings projects. Withdrawals can be made at any time without restriction.*
  • All Canadian residents who are at least age 18 are eligible to contribute to a TFSA, whether or not they are earning a salary. The annual contribution limit is the same for everyone ($5,000 in 2009).
  • Amounts withdrawn from a TFSA are added to the contribution limit for the following year.
  • Withdrawals are not included in taxable income and capital gains and other investment income earned in a TFSA are tax-free.
  • Withdrawals do not affect eligibility for federal income-tested benefits or credits.
  • Contributions are not deductible from taxable income.

*Subject to redemption fees, as applicable.


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