What is TFSA?
TFSA or a tax-free savings account is an account available in Canada that provides tax benefits for saving. Investment income,including capital gains and dividends, earned in a TFSA is not taxed in most cases, even when withdrawn. The TFSA was
introduced in 2009 by the Government of Canada as an incentive for eligible Canadians to save.
Who is eligible for a TFSA?
TFSAs are available to every Canadian resident, who is 18 years of age or older with a valid Social Insurance Number (SIN). To open a TFSA you must be of the age of majority in your province of residence.
How does a TFSA work?
You can hold qualified investments like cash, stocks, bonds, mutual funds in a TFSA and can withdraw contributions as well as the
interest, capital gains, and dividends earned in the account at any time, without paying taxes (or reporting the withdrawals as
income when you file your taxes).
Each year, the Government of Canada determines the maximum amount a holder of a TFSA can contribute to it in that year. This limit is known as the contribution limit. The contribution room begins to accumulate every year, if any time beginning in the
calendar year a Canadian resident is 18 years and older.
What are the benefits of investing in TFSA?
TFSA can bring you following benefits:
- It can help you reach your saving goals, and you can withdraw your money when you need it.
- You pay no tax on any investment income you may earn in your TFSA and you can hold a variety of qualified investments, including cash, stocks, guaranteed investment certificates and mutual funds.
- A TFSA can complement your personal RRSP by providing additional tax-advantaged savings when you have no more RRSP contribution room or you are over age 71 and not allowed to hold an RRSP anymore.
- You can withdraw funds from the TFSA without paying tax. This can make the TFSA a great tool to save for big-ticket items. When you're ready to use your funds, you can withdraw without paying tax.
