UNDERSTANDING THE TAX FREE SAVING ACCOUNT (TFSA)
The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).
You do not have to set up a TFSA or file a tax return to earn contribution room. TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada.The annual and cumulative total TFSA limit per person is shown below. For 2017, the personal limit is $5,500 with a cumulative limit of $52,000.
What Types of Investments are Allowed?
In general, the types of investments that will be permitted in a TFSA are similar to those in an RRSP. These would include:
- mutual and/or Segregated funds;
- securities listed on a designated stock exchange;
- guaranteed investment certificates (GICs);
- bonds; and
- certain shares of small business corporations.
Things to Watch Out For
- Withholding taxes on foreign dividends in a TFSA
Withholding taxes will be deducted from foreign dividends received in a TFSA, and these taxes are not recoverable.
- Don’t Over-Contribute
The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month.
Where can you find out your TFSA contribution room information?
Your TFSA contribution room information can be found by going to one of the following government services.
Learn more about TFSAs at my website by clicking here!
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