A TFSA is not a traditional savings account. It’s a type of plan that allows you to earn many types of investment income tax-free (including capital gains). A TFSA can help you save for a large purchase or supplement your retirement savings plan.
Contributing to a TFSA
- The maximum contribution in 2010 is $5,000. In the future, the maximum will be indexed to inflation and rounded to the nearest $500 on a yearly basis.
- Any unused contribution room is carried forward to future years.
- Contributions are not tax deductible.
- Income, losses and capital gains are not included in taxable income.
- Any resident of Canada who is 18 or older, and has filed an income tax return is eligible to contribute to a TFSA.
- You can have more than one TFSA, but the maximum allowable contribution amount applies to the total of all TFSAs you hold.
- There is no spousal TFSA, but you can give money to your spouse to contribute to his or her own TFSA.
- Unlike an RRSP, you can contribute to a TFSA even if you haven’t earned income.
Withdrawals from a TFSA
- Increase contribution room by the same amount in the following year
- Do not affect eligibility for federal income-tested benefits and credits such as Canada child tax benefit, working income tax benefit, GST credit and old age security benefits
- Are not included in taxable income
- Can be made at any time and for any purpose