In 2009, a program named Tax-Free Savings Account (TFSA) was introduced. TFSA allows individuals who are over 18 years of age with a valid social insurance number to set money aside tax-free throughout their lifetime. Tax-deductible is not applicable to TFSA contributions for income purposes, unlike Registered Retirement Saving Plans’ (RRSP) contributions. All fees in relation to TFSA and interest or money borrowed to contribute to TFSA will not be deducted.
Any monetary gained and income earned in your TFSA (including investment income and capital gain) is tax-free in most cases, even when withdrawn.
To be eligible to open a TFSA, you have to be a Canadian resident who is 18 years of age or older with a valid social insurance number. Investment income earned within a TFSA is not subject to income tax. Withdrawals can be made at any time with no tax consequence.
As the account holder, you are the only person that can do the followings with your TFSA:
Keep in mind of the following rules and restrictions for contributing, withdrawing, and transferring:
TFSA contribution room is used to determine the maximum amount that you can contribute to your TFSA account.
Since 2009, if at any time in a calendar year you were at least 18 years old, a resident of Canada, and had a valid Social Insurance Number, you received TFSA contribution room. Even if you did not file an income tax return or open a TFSA, you still received your TFSA contribution room if you met these conditions.
The limit history for TFSAs is as follows:
|Year||Annual TFSA dollar limit|
|2009, 2010, 2011 and 2012||$5,000|
|2013 and 2014||$5,500|
There are two types of qualified transfers:
If you want to transfer funds from one TFSA to another or from one issuer to another, there will be no tax consequences if your issuer completes a direct transfer on your behalf. For more information, contact your issuer.
Please note, If you withdraw the funds yourself and contribute the same funds to another TFSA, this transaction would not be considered a direct transfer and could have tax consequences. In this situation, the funds will be treated as a regular contribution which will reduce your TFSA contribution room for the year. If you do not have sufficient contribution room, you will have over-contributed to your TFSA and will be subject to a 1% tax on the highest excess amount in the month, for each month that the excess remains in the account.
Your and your spouse’s TFSA individual contribution room will not be affected when transferring an amount directly from one to another’s TFSA if there is a breakdown in a marriage or common-law partnership. The transfer must be made directly between the TFSAs by the issuer.
If you are in this situation, the following conditions need to be met: