TFSA

Tax Free Savings Account is an investment option that gives investors the advantage of tax benefits.

Are you retired or nearing retirement period?

Are you worried about your financial position and stability during your golden years?

Are you looking for a saving option that will give you tax benefits?

TFSA is an investment solution for individuals who are 18 years of age or older and own a valid social insurance number (SIN). The investment allows the eligible candidates to set money aside tax free throughout their lifetime.

The largest advantage of this investment is that the contributions to a TFSA are not deductible for income tax purposes. The amount that is contributed and that which is earned which include investment income and capital gains are generally not applicable to taxation even at withdrawal period. You should also note that administrative fees or any other TFSA related fees together with any interests gained on the borrowed money to contribute to a TFSA are not tax-deductible.

The working of a TFSA is very simple and straightforward. All you have to do is open a TFSA, deposit money and be hopeful about the growth of your gains. The investments are characterized by annual contribution limits within which you can make your contributions which vary with each year and flexible withdrawal times as an investor is free to withdraw at any time without penalty.

In case of over-contribution, you will be subjected to a penalty of 1% of the excess contribution every month until it’s withdrawn.

Any individual who is 18 years of age or older and possesses a valid SIN meets the eligibility of opening a TFSA. You can only start contributing to a TFSA account when you turn 18 keeping in mind the dollar limit. The account can also be opened by any person who is determined to be a non-resident of Canada for income tax purposes provided that they hold a valid SIN. However, the contributions made to the account while the individual is still a non-resident will be subjected to a 1% monthly taxation for the lifetime the account remains active.

First, you should contact your financial institution, credit union, or insurance company that will act as the issuer. Then, the issuer will need to get your SIN and date of birth for registration purposes. The issuer is entitled to asking for supporting documents to meet the qualifying arrangements.

Failure to provide the needed information or provision of incorrect information may lead to the decline of the application. In the event that the TFSA is not registered, the income an individual earns will be subject to Income Tax and Benefit Return.

It is also possible to direct your TFSA by yourself under self-directed TFSA. This is for all those who want to build and manage their own investment portfolio by buying and selling different types of investments. More information on this, it is important to contact a TFSA issuer.

Banks, insurance companies, credit unions, and trust companies can all issue TFSAs. There are three types of TFSAs that can be offered: a deposit, an annuity contract, and an arrangement in trust. RRSP and TFSA have major similarities when it comes to the types of investments permitted. These can be summed up as follows:

• cash
• mutual funds
• securities listed on a designated stock exchange
• guaranteed investment certificates
• bonds
• certain shares of small business corporations

When a transfer qualifies to be moved from one TFSA to another, this is not considered to be a withdrawal.

Making a withdrawal depends on the type of investment held in your TFSA. You can withdraw any amount from the TFSA at any time but withdrawing does not reduce the total amount of contributions you have already made for the year. Withdrawals, excluding qualifying transfers and specified distributions, made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year.

Replacing or re-contributing the entire or portions of your withdrawals into TFSA in the same year is only possible in the presence of enough TFSA contribution room. In the event that you decide to re-contribute without enough contribution room, the result is an over-contributed TFSA in the year which leads to 1% taxation of the highest excess TFSA amount in the month, for each month that the excess amount remains in your account.