A TFSA is a new registered account that allows taxpayers to earn interest, investment income and capital gains tax-free. A TFSA gives you a faster way to save for a family vacation, home renovation, your retirement, your children’s education or a new car.
Any Canadian resident 18 years of age or older can open a TFSA as of January 2, 2009.
The 2009 contribution limit for each individual is set at $5,000. However, that contribution limit is indexed to inflation, which means it will rise with the cost of living. TFSA contributions are not tax deductible nor is any interest on money borrowed to invest in a TFSA.
You can make periodic monthly contributions or partial contributions to your TFSA. Any unused contribution room can be carried into future years indefinitely.
Every year the government will calculate how much TFSA contribution room you have available. You will be informed of your contribution limit when you receive your T1 Notice of Assessment.
No, you don’t have to pay tax on the amount you withdraw as it is not considered taxable income.
Similar to a RSP, you will be charged an over-contribution penalty of 1% per month by the Canada Revenue Agency (CRA) on your excess contribution amount. The maximum contribution room is set per person not per TFSA; for example, in 2009 the maximum contribution room for an individual is $5,000 regardless of how many TFSAs that individual opens.
Yes. If you are eligible, you will accumulate contribution room each year even if you have earned no income.
You can withdraw funds from your TFSA anytime you want. You don’t have to reach a certain age before you withdraw your money.
- If I withdraw money from my TFSA, can I re-contribute the withdrawn amount later on in the tax year?
Amounts withdrawn cannot be re-contributed until the following calendar year. For example, you contributed $5,000 to your TFSA in January 2009. In August the same year, you withdrew $2,000 to pay for a holiday. You cannot re-contribute that $2,000 in 2009. But in 2010 it will be added to your contribution room ($5,000) again, meaning you could contribute up to $7,000 in 2010.
No, you cannot contribute directly to your spouse’s TFSA as you can with a spousal RSP. However, you can give money to your spouse or common-law partner and he/she can then contribute to his/her own TFSA.
Withdrawals and investment income earned in the TFSA are not taxable to either you or your spouse/common-law partner regardless of whose money was used to make the contribution.
Yes. Assets within your TFSA can be used as collateral for a loan.
No, TFSA can only be opened by Canadian residents.
If you become a non-resident, you are able to maintain your TFSA and will not be taxed on any investment income or withdrawals in the account. However, you will not be allowed to contribute additional funds and no contribution room will accrue for the years in which you are a non-resident.
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TFSA RRSP Contribution - Minimum Age Age 18 None Contribution - Maximum Age None 71 2009 Contribution Room $5000 18% of 2008 income with a limit of $20,000 Carry-forward of Unused Contribution Room Yes Yes Over-Contributions Penalty 1% per month 1% per month Tax Deduction for Contributions No Yes Taxation on Withdrawals No Yes Impact of Withdrawals None Taxed as income -
You can appoint your spouse or common-law partner as the successor holder or sole beneficiary of your TFSA so that upon death, the surviving spouse or common-law partner takes the TFSA as the successor holder and can continue with the TFSA or transfer it to another TFSA held by the successor without tax consequences. There is no impact on the successor’s existing contribution room. If your spouse or common-law partner is named as a joint beneficiary of your TFSA or is not named in your TFSA but is entitled under your will to the amounts paid under your TFSA or is the sole beneficiary of your estate, the spouse or common law partner becomes your survivor for the TFSA and may transfer the TFSA to another TFSA held by the survivor without impact on the survivor’s existing TFSA contribution room for a period of up to one calendar year following the year of death.
Conversely, if your spouse or common-law partner is not appointed as successor holder, a sole beneficiary or a joint beneficiary of your TFSA assets, upon death, your TFSA account will be terminated and assets paid to the named beneficiaries. The payment will not impact the beneficiaries TFSA contribution room but the proceeds cannot be contributed directly to a TFSA. If the beneficiaries want to contribute any funds in the future to their own TFSA, it will be subject to their contribution room. -
If you appointed your spouse or common-law partner as the successor holder of your TFSA, refer to #17 above for what happens upon your death.
Your TFSA ceases to be a TFSA upon your death, and the deposits held in your TFSA are to be dealt with as deposits owned by the named beneficiary(ies). The fair market value of your TFSA at the time of your death will be tax exempt but all earnings accrued after your death will be taxable to the beneficiary(ies) when paid. Changes to Provincial laws are required to allow a designation of a beneficiary for a TFSA to be effective. These changes are expected to be made soon but there is no guarantee that the law in your place of residence will permit a designation to be effective when you die. You should review the law in your place of residence with your legal advisor and undertake your estate planning in accordance with your circumstances.
TFSA assets may be transferred between spouses or common-law partners on marriage or relationship breakdown but the transfer will not reinstate contribution room of the transferring spouse or reduce the contribution room of the receiving spouse.
