Tax-Free Savings Account (TFSA)                

The Government has introduced a new Tax-Free Savings Account (TFSA). Starting in 2009, Canadians are able to contribute to this account. The TFSA allows Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes.

TFSA savings can be used to purchase a new car, renovate a house, start a small business or take a family vacation.

Canadians from all income levels and all walks of life can benefit.

How the TFSA Works

❖   Canadians aged 18 and older can save up to $5,000 every year in a TFSA.

❖   Contributions to a TFSA are not deductible for income tax purposes but investment income, including capital gains, earned in a TFSA is not  taxed, even when withdrawn.

❖   Unused TFSA contribution room can be carried forward to future years. You can withdraw funds from the TFSA at any time for any purpose. The amount withdrawn can be put back in the TFSA at a later date without reducing your contribution room.

❖   Neither income earned in a TFSA nor withdrawals affects your eligibility for federal income-tested benefits and credits.

❖   Contributions to a spouse’s TFSA  are allowed and TFSA assets can be transferred to a spouse upon death.

How Is a TFSA Different From a Registered Retirement Savings Plan?

Both plans offer tax advantages, but they have key differences:

●    Contributions to an RRSP are deductible and reduce your income for tax purposes. In contrast, your TFSA savings are not deductible.

●    Withdrawals from an RRSP are added to your income and taxed at current rates. Your TFSA withdrawals and growth within your account are not— they are tax-free.

A Flexible Account for a Lifetime of Savings

Not everyone is able to save each and every year. Those who cannot contribute $5,000 in a given year will be able to carry forward their unused contribution room to future years.

In addition, Canadians may want to use their savings—to buy a new car or a cottage, or start a small business—and the full amount of withdrawals can be put back into the TFSA in the future.

Couples often save and plan together, so Canadians can contribute to their spouse’s or common-law partner’s TFSA, depending on the spouse’s or partner’s available room.

No Impact on Income-Tested Benefits

Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested benefits and credits, such as the Guaranteed Income Supplement and the Canada Child Tax Benefit. This will improve incentives for people with low and modest incomes to saveExample. Alexandre and Patricia, a modest-income couple, expect to receive the Guaranteed Income Supplement (GIS) in addition to Old Age Security and Canada Pension Plan benefits when they retire. They earn $2,000 a year in interest income from their TFSA savings. Neither this income, nor any TFSA withdrawals, will affect the GIS benefits (or any other federal income-tested benefits and credits) they receive. If this $2,000 were earned on an unregistered basis, it would reduce their GIS benefits by $1,000.

What can you invest in?

A TFSA will be allowed to invest in basically the same qualifies investments currently permitted for RRSP, including stocks, bonds, funds etc.

For more information click the following link:

http://www.budget.gc.ca/2008/pamphlet-depliant/pamphlet-depliant2-eng.asp.

Contact us for free consultation, to discuss your investment program, or just to ask your question.