Tax Free Savings Account

 A Fresh Approach to Savings

The Federal Government has introduced a new registered savings account that allows taxpayers to earn investment income tax-free.  The Tax-Free Savings Account (TFSA) is now available to Canadian Residents age 18 or older.  TFSA allows taxpayers to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetime.

There are no restrictions on the way TFSA funds (contribution and earnings) may be used (i.e. purchase a car, renovate a home, start a small business, take a family vacation, or just save for 'a rainy day').  All income levels and all walks of life can benefit from a TFSA.  But only a careful review of each person's financial situation will determine how to optimize use of RRSPs, RESPs, RRIFs and TFSAs.

TFSA Contribution Limit

Contribution to a TFSA may only be made by the Holder and the amount is not tied to the income of the Holder. 

• As of January 1st, 2013, the annual contribution limit has been increased to $5,500. 
• Contributions are not tax deductible
• Contribution limit will appear on your annual Notice of Assessment

TFSA Eligibility

The individual owning the TFSA is the 'Holder'.  Any individual person (not trusts or corporations) who meets all of the following three requirements is eligible to open a TFSA:

• Resident in Canada, and
• 18 years of age or older, and
• Holds a valid Social Insurance Number (SIN)

There is no maximum age limit to open or hold a TFSA and a person may hold more than one TFSA.

Qualified Investments

The types of eligible investments are restricted under the Income Tax Act and include:

• Term deposits and GICs
• Variable interest savings accounts
• Index-linked term deposits
• Mutual Funds*
• Publicly traded securities
• Bonds

TFSA Unused Contribution Room

When a TFSA Holder contributes less than the maximum contribution limit, the difference is referred to as "unused contribution room". 

• Unused contribution room will accumulate each year
• Unused contribution room is carried forward indefinitely, allowing the Holder to 'catch up' by contributing more than the maximum contribution limit in a future year
• A TFSA withdrawal will increase the contribution room for the year after withdrawal.  As a result, when amounts are withdrawn from a TFSA they can be re-contributed in the future when funds become available
• Canada Revenue Agency will confirm the contribution room on the annual Notice of Assessment

Withdrawals 

• TFSA Holder may withdraw funds at any time; withdrawals may be restricted by investment terms
• Withdrawals are not reported as taxable income and are not subject to income tax
• TFSA withdrawals of contribution/earnings will increase contribution room for future years, but not the current year
• Withdrawals will not impact eligibility for federal income tested benefits and credits (e.g. OAS, GIS, Age Credit, GST, EI, child-tax benefit, working income tax benefit).

 *Mutual funds are offered through Credential Asset Management Inc. and mutual funds and other securities are offered through Credential Securities Inc.  Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing.  Unless otherwise stated, cash balances, mutual funds and other securities are not convered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.  Mutual funds and other securities are not guaranteed, their values change frequently and past performance may not be repeated.  Credential Securities Inc. is a Member - CIPF.

Registered Deposit Product Fee Disclosure Document