Get on the Route to Success in Saving!
The Tax-Free Savings Account (TFSA) was introduced by the Government of Canada in the 2008 federal budget as a means for Canadians to expand their saving strategy for important life purchases.
Merge Into Success!
How does a TFSA work? Simply put, it's is a government-registered savings plan. Contributions are made with your after-tax dollars. Income earned inside your TFSA is TAX-FREE and can be withdrawn with no tax penalty. Members have flexible account options, i.e. GICs, Term Deposits, Savings accounts, etc. for a lifetime of saving needs.
As they are a registered product, TFSA interest rates mirror other registered Bayview investment products, i.e. RRSPs and RRIFs. Additionally, Bayview offers a Super Savings TFSA account:
To help you understand the TFSA better, we've put together some Frequently Asked Questions (FAQs) based on government information. We will update this page as information continues to becomes available.
The TFSA is a federal government-registered savings account that allows taxpayers to earn investment income tax-free within the account. Deposits of after tax money contributed to the account are not deductible for tax purposes. At the same time withdrawals of contributions and interest earnings from the account are not taxable.
Moneys saved in a TFSA can be used for a variety of needs, i.e. new car purchase, house renovations, to start a small business, family vacation, etc. Withdrawn funds can be used for whatever the planholder wishes.
In New Brunswick, any Canadian resident who is 18 years of age or older will begin to accumulate contribution room in 2009. However some restrictions apply to the types of products that can be held in a TSFA.
Tax-Free Savings Account products will be available at Bayview Credit Union beginning on January 2, 2009.
A TFSA would generally be permitted to hold the same investments as a registered retirement savings plan (RRSP), such as:
Similar to an RRSP, excess contributions to a TFSA above and beyond the legislated annual contribution limit will be subject to a 1% per month penalty tax until withdrawn.
The big advantage to the TFSA is that any income and gains on investments held within it will not be taxed either while held in a TFSA or upon withdrawal, hence the name – Tax-Free Savings Account.
Because capital gains and other investment income earned within a TFSA will not be taxed, an individual contributing $200 a month to a TFSA for 20 years will accumulate about $11,045 more in savings than if the investment had been held in a taxable savings vehicle (i.e. an unregistered account).
An RRSP is designed specifically to provide an income during retirement. Money deposited to an RRSP is deductible on personal income tax which defers the tax implications until the time of retirement and the money as well as the accrued interest is used as income.
Each year you can contribute an amount up to your legislated annual contribution limit for the year. Contribution room in a TFSA will be determined by the Canada Revenue Agency (CRA) for each eligible individual who files an annual income tax return.
Your contribution room would be made up of three amounts:
For example (assuming no indexing):
Yes, the 2008 federal budget proposes no limit on the number of years unused contribution room could be carried forward.
No, you can withdraw any amount from the account for any reason.
That being said, it is important to bear in mind that the same restrictions apply to a TFSA investment product as any other GIC or Term Deposit. So if the TFSA is a non-redeemable 2 year GIC the funds may not be withdrawn until the GIC matures.
Interest expenses on funds borrowed for the purpose of investing in a TFSA cannot be written off, since both TFSA income and TFSA withdrawals are both non-taxable.
Unlike RRSPs which cannot be used as collateral for a loan, TFSA assets can be used as collateral.
No. Unlike a spousal RRSP which allows one person to make contribution's on their spouse/CLP's behalf, a TFSA may only be held in the name of the planholder, and only this person can make contributions. A spouse/CLP would of course be free to give funds to their partner who could contribute on his/her own.