Many have written overly lengthy articles about this simple account type, the tax free savings account (TFSA). This will be short. Here are 10 quick and simple facts covering just about everything there is to know about the TFSA:
(1) You are probably eligible
All Canadians, age 18 or older, are eligible for TFSAs.
(2) Tax Free really does mean Tax Free
When money is withdrawn, it is tax-free – including any gains realized within the TFSA.
(3) No refunds
Contributions in to the account are not tax-deductible (unlike RRSP contributions).
(4) We all get the same room
The annual contribution limit is $5,000. For everyone. This limit will be adjusted for inflation in $500 increments.
(5) Always there for you
Annual contribution room can be carried forward indefinitely. You never lose it and you haven’t lost out if you haven’t started your TFSA yet.
(6) Share the love
You can freely contribute to your spouse or common-law partners TFSA against their contribution limits and not your own.
(7) Anything goes
Don’t let the “savings account” in the name fool you. Your TFSA can hold any RRSP-eligible investments (cash, shares, mutual funds, trusts, etc).
(8) No breaks for borrowers
Interest on money borrowed to invest in a TFSA is not tax deductable.
(9) Withdraw without fear
Any money withdrawn from the TSFA creates equal contribution room in the following year.
(10) Your losses are all yours to eat
Losses in a TFSA can not be declared as capital losses. It’s only fair since you pay no tax on the gains.
Since being introduced in 2009, many Canadians still view the Tax-Free Savings Account (TFSA) it as a simple savings account. The reality is, it can be a very powerful investment tool to grow your wealth and anyone looking to start investing should be looking to a TFSA first and foremost. Really, it’s like a nice little world where the usual tax rules don’t apply and everything is simple.. I just wish they’d been introduced the year I turned 18 so I’d have more contribution room.