Taking Advantage of the TFSA

The Tax Free Savings Account (TFSA) encourages Canadians to save money to meet financial goals and lifetime saving needs. No tax deduction is available for the contributions made, but all money withdrawn is tax-free and all investment income (e.g., interest, dividends, capital gains) can be generated without attracting tax or affecting the eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.

TFSAs can be issued by banks, insurance companies, credit unions, and trust companies.

Who Can Contribute to a TFSA?

Any resident of Canada over the age of 18 with a valid social insurance number is eligible to establish a TFSA and may save up to the maximum allowable amount each year. For example, Jane turns 18 on May 13, 2014. She will not be able to open and contribute to a TFSA until then. However, on May 13, 2014, she can open a TFSA and contribute the full 2014 TFSA dollar limit.

In provinces and territories where the legal age of majority is not until 19, individuals will not be able to open a TFSA until reaching age 19. However, in these jurisdictions, an 18-year-old who would otherwise be eligible accumulates TFSA contribution room for that year and carries it over to the following year.

How Much Can I Contribute to a TFSA?

The maximum contribution limit is currently $5,500. The accumulation of contribution room starts at age 18 or in 2009, whichever is later. TFSA contribution room is accumulated for each year even if you do not file an income tax and benefit return or open a TFSA.  Any unused contribution room can be carried forward to future years indefinitely.

Excess Contributions

You will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount remains in your account.

Making withdrawals

You can withdraw any amount from the TFSA at any time without reducing the total amount of contributions you have already made for the year. The amount of the withdrawal, excluding qualifying transfers and specified distributions made from your TFSA in the year, will be added back to your TFSA contribution room at the beginning of the following year.

Replacing Withdrawals

If you decide to replace or re-contribute all or a portion of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. If you re-contribute but do not have contribution room, you will have over-contributed for that year.

What Happens Upon Death?

Upon the death of an individual, the TFSA is deemed to be disposed of, like an RRSP. However, if the individual names his or her spouse/common-law partner as the successor account holder, the plan may be rolled over to his or her TFSA.

We can help.

 

Related Posts

I Just Bought a Condominium . . . Now What?

A condominium is a type of legal ownership where the property is divided between privately owned units and common elements. Each unit owner owns the unit as well as a proportion of common elements, which includes such things as hallways, lobbies and elevators and there are also “exclusive use common property elements,” such as balconies,

Read More »

Challenges to Testamentary Documents

Quite often we hear about someone’s Will being challenged.  The most common grounds being: proper execution; knowledge and approval of the contents of the Will; fraud; lack of testamentary capacity; and undue influence and suspicious circumstances. A person who wishes to challenge a Will as being invalid must file a Notice of Objection with the

Read More »

Resolving Challenges to Testamentary Documents and other estate disputes

Sometimes estate disputes are inevitable given the family dynamics for the challenge to be made. A variety of mechanisms exist to resolve disputes arising over testamentary documents, such as informal settlement, mediation, and court. Informal Settlement   At any time, the matter can be resolved informally. Legal counsel may discuss the case and advise the parties

Read More »

Duties and Powers of an Attorney for Property

The role, powers and obligations of an attorney for property are set out by statute (Substitute Decisions Act, 1992) as interpreted by the courts (called common law). Purpose If a person is unable to look after or may need help with his or her own affairs such as banking, paying bills, buying necessary items, or

Read More »

Taking Advantage of the TFSA

The Tax Free Savings Account (TFSA) encourages Canadians to save money to meet financial goals and lifetime saving needs. No tax deduction is available for the contributions made, but all money withdrawn is tax-free and all investment income (e.g., interest, dividends, capital gains) can be generated without attracting tax or affecting the eligibility for federal

Read More »

Implications of appointing a non-resident Estate Trustee

Appointing an estate trustee who does not reside in Canada has several negative implications.  A non-resident estate trustee is required to post a bond (which is costly and adds delay), and he or she may not be eligible to make certain financial investments available to Canadian residents (e.g., stocks, bonds, Canada Savings Bonds). Even if

Read More »
Scroll to Top