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and income earned in your TFSA (including investment income and capital gain) is tax-free in most cases, even when withdrawn.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. The TFSA can be used to save money or to invest that the income earned on contributions is not taxed. The account holder might withdraw the fund at any time with free of charge for taxes.
As the account holder, you are the only person that can do the followings with your TFSA:
Depends on your investment types, most of your funds can be withdrawn by any amount at any time. However, withdrawing funds from your TFSA does not reduce the total amount of contributions you have already made for the year.
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 the calendar year you are 18 years old or over and a resident of Canada, TFSA contribution room accumulates every year. Even if you do not file an income tax and benefit return or open a TFSA, your TFSA contribution rooms will still be accumulated every year.
Note: TFSA contributions can only be accepted if were contributed under a valid social insurance number.
|Year||Annual TFSA dollar limit|
|2009, 2010, 2011 and 2012||$5,000|
|2013 and 2014||$5,500|
TFSA contribution room calculation:
There are two types of qualified transfers:
There will be tax consequences if you want to transfer your funds from one TFSA to another or to transfer your TFSA to another issuer if the issuer completes a direct transfer.
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:
A financial institution must complete all qualifying transfers.
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