Tax Free Savings Account (TFSA)

Elite Private Wealth Tax Free Savings Account

The TFSA allows Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used for any purpose, such as to purchase a new car, renovate a house, start a small business or take a family vacation.

How the TFSA Works

  • Starting in 2009, if you are a Canadian resident aged 18 and older, you can save up to $5,000 every year in a TFSA. As of January 2013 the contribution limit increased to $5,500 and in 2015 the contribution limit increased to $10,000. In 2016 the contribution limit is $5,500. This gives Canadian’s a total TFSA Contribution room of $46,500
  • Your contributions into a TFSA are not deductible for income tax purposes but the investment income, including capital gains , earned in your TFSA is not taxed, even when withdrawn.
  • Your unused TFSA contribution room is carried forward and accumulates for future years.
  • You can withdraw funds available in your TFSA at any time for any purpose, and the full amount of withdrawals can be put back into your TFSA in future years.
  • Neither income earned in a TFSA nor withdrawals affect your eligibility for federal income-tested benefits and credits.
  • You can provide funds to your spouse or common-law partner to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.

How is a TFSA Different from a Registered Retirement Savings Plan?

An RRSP is primarily intended for retirement.

Both plans offer tax advantages. TFSA allows you to accumulate investment income tax-free within the account, bwhile growth in an RRSP is tax deferred.

  • Contributions to an RRSP are deductible and reduce your income for tax purposes. In contrast, your TFSA savings contributions are not deductible.
  • Withdrawals from an RRSP are added to your income and taxed at current rates. Your TFSA withdrawals and growth within your account are not included in your income – they are tax free.