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The TFSA allows Canadians of all income levels to set money aside in eligible investment vehicles and enjoy tax-free growth. TFSA savings may be withdrawn tax-free for any purpose at any time. All income, dividends and capital gains earned within a TFSA account are completely tax-free.
All Excel Funds are eligible for purchase within a TFSA.
How does the TFSA work?
- Effective January 2, 2009, Canadian residents aged 18 years and older may save up to $5,000 every year in a TFSA.
- Contributions to a TFSA are not deductible for income tax purposes, however the investment income earned in your TFSA, including capital gains, will not be taxed even at the time of withdrawal.
- Unused TFSA contribution room is carried forward and accumulated year over year for future contributions.
- TFSA savings may be withdrawn tax-free at any time for any purpose.
- The amount withdrawn from your TFSA savings may be redeposited at any time, in any future year without reducing your contribution room.
- TFSA assets may generally be transferable to a spouse or common-law partner upon death.
- Unlike an RRSP, growth and withdrawals within your TFSA are not calculated as income and are completely income tax-free.
How does a TFSA differ from a Registered Retirement Savings Plan (RRSP)?
An RRSP is primarily designed for your retirement planning needs. A TFSA is available to be used for whatever you choose, whenever you choose -- without tax consequences.
Both an RRSP and TFSA allow you to accumulate investment income tax-free, but with distinctly different advantages:
- RRSP contributions are deductible for income for tax purposes. TFSA savings contributions are not.
- Withdrawals from your RRSP are added to your income and taxed at current rates. Growth and withdrawals within your TFSA are not calculated as income and are income tax-free.
You may contribute up to $5,000 per year to your TFSA, regardless of whether you have utilized all of your RRSP contribution room or not.
Frequently Asked Questions:
Q. Who is eligible for a TFSA?
A. To invest in a TFSA you must:
- Be a Canadian citizen
- Be 18 years of age and older
- Have a valid Social Insurance Number (SIN)
Q. Does Excel Funds Management Inc. offer TFSA's?
A. Yes. Beginning January 2, 2009, all Excel Funds are TFSA eligible.
Q. How much may I contribute to the TFSA per year?
A. Every year, beginning 2009, you may contribute any amount up to your maximum contribution for the year. Your allowable contribution will incorporate the following:
(1) The allowable annual contribution room of $5,000 (this annual amount will be indexed to inflation and rounded to the nearest $500 on a yearly basis).
(2) All withdrawals amounts taken from your TFSA in previous years would be added to the eligible contribution room.
(3) All unused contribution room from previous years would be added to the contribution room for the year.
Q. If I don't have the money to invest in a given year, would I be able to use any unused
contribution room in a future year(s)?
A. Any unused TFSA contribution room is carried forward indefinitely. For example, if you were to contribute $4,000 to your TFSA in 2009, you may contribute $6,000 to your TFSA in 2010 ($5,000 annual limit plus the unused room of $1,000 from 2009).
Q. Are there any restrictions on withdrawals?
A. No, you may withdraw any amount at any time for any reason.
Q. What kind of investments may be held in a TFSA?
A. A TFSA would generally be permitted to hold the same investment vehicles as an RRSP.
Q. Is interest on money borrowed to invest in my TFSA tax-deductible?
A. Interest on money borrowed for a TFSA contribution is not deductible for tax purposes.
Q. What happens if a TFSA account holder passes away?
A. TFSA earnings accrued prior to an account holder's death remain tax free, while those that accrue post-mortem are taxable. It is possible to maintain the tax-free status of the earnings if the TFSA account holder has named his/her spouse or common-law partner as the successor account holder . The assets of the deceased's TFSA may be transferred to the TFSA of the surviving spouse or common-law partner without any impact on the survivor's existing contribution room.
Contact your Investment Advisor to learn how you may open a convenient Tax-Free Savings Account and take advantage of this exciting opportunity for tax-free growth!
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