What is it?
A TFSA is a flexible investment savings plan that allows investors to earn investment income tax-free and pay no tax on withdrawals.
How does it work?
After-tax dollars you contribute to a TSFA grow tax-free. Withdrawals from a TFSA are also tax-free so the account can be used for retirement savings, retirement income or for such things as a vacation or a new car. To qualify for a TFSA, an investor must be 18 or older, a resident of Canada and have a valid social insurance number.
Multiple TFSAs are allowed as long as the combined annual contributions for all accounts don’t exceed the maximum annual TFSA contribution amount. Unused contribution room is carried forward indefinitely.
Income earned within a TFSA and withdrawals from it don’t affect eligibility for federal income-tested benefits and credits, such as Old Age Security, Guaranteed Income Supplement or the Canada Child Tax Benefit. Contributions aren’t tax deductible and the investment income earned in the account along with any reported losses or gains aren’t considered taxable income.
The TFSA provides seniors with a tax-free savings vehicle to meet ongoing savings needs, even after age 71. Spouses, common-law partners and children age 18 or older of employees may set up an account in a group TFSA, if the plan sponsor permits it.
To find out TFSA contribution amounts, visit the Canada Revenue Agency website.