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Jan Canning
Cindy Tam
Adam Canning

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Tax Free Savings Accounts (TFSA)

In the 2008 Federal Budget, the Government of Canada announced the creation of a new Tax-Free Savings Account (TFSA). Beginning in 2009, individuals residing in Canada, who are 18 years of age and older, have been able to make annual contributions to a TFSA where the holdings grow and earn income tax-free.

Eligibility
You can open a TFSA if you are an individual Canadian resident, aged 18 or older, and have a Social Insurance Number (SIN).

Contributions
As of 2018, you can contribute a maximum of $5,500 per year to your TFSA. Unlike your registered retirement savings plan (RRSP), individuals over age 71 can contribute to a TFSA.

The annual maximum TFSA contribution limit's are as follows:
  • 2009 - 2012 - $5,000;
  • 2013 - 2014 - $5,500
  • 2015 - $10,000 (new limit announced in 2015 Federal Budget)
  • 2016 - $5,500
  • 2017 - $5,500
  • 2018 - $5,500
If you don't contribute the maximum amount in a particular year, you will be able to carry forward your unused contribution room and contribute it in future years. There is no limit on either the amount of contribution room that can be carried forward or on the number of years the amount can be carried forward.

Withdrawals
You can withdraw funds from your TFSA at any time and for any purpose.

Funds withdrawn from your TFSA will not affect federal income-tested benefits or credits (e.g. Child Tax Benefit, Guaranteed Income Supplement, Old Age Security benefits, Age credit, Goods and Services Tax credit).

The amount you withdraw from your TFSA will be added to your unused contribution room so that the funds withdrawn can be put back into a TFSA in a subsequent year.

Taxation
You will not be taxed on any income or capital gains earned on your investments in your TFSA and you will not be taxed on any funds withdrawn from you TFSA.

Contributions to your TFSA will not be tax deductible.

Interest on funds borrowed to contribute to a TFSA will not be deductible.

Excess contributions will be subject to a penalty tax.

Holdings
Like your RRSP, qualifying investments for a TFSA include: cash, guaranteed investment certificates (GICs), mutual funds, publicly traded securities, government and corporate bonds in your TFSA.