H & L Capital - ScotiaMcLeod Calgary - Tax Free Savings Account

By: H & L Capital  09-12-2011
Keywords: Tax-free Savings

Beginning January 2009, Canadian residents 18 years of age and older may contribute up to $5,000 to a Tax-Free Savings Account (TFSA) annually.  Investment income, including interest income, capital gains and dividends earned within the account will be tax-free - even when withdrawn. 

Although the TFSA has no up front tax deduction (unlike RRSPs), the money that is withdrawn is not taxed, including interest income, capital gains or dividends.  If funds are withdrawn from the plan, the full amount is tax-free plus the withdrawal is added to future contribution room.

Some additional highlights:

  • The $5,000 will be indexed for inflation starting in $500 increments.
  • Any unused contribution room can be carried forward to future years, and there is no limit on the number of years that unused contribution room can be carried forward.
  • Interest on money borrowed to invest in a TFSA will not be tax deductible in computing income for tax purposes.
  • Unlike RRSPs, there is no maximum age limit for contributing to a TFSA thereby giving retirees a tax free investment option where one has never existed before.
  • Attribution rules do not apply to income earned within the account, allowing for a higher-income spouse to split investment income by contributing to the TFSA of a lower-income spouse.
  • TFSA assets can be used as collateral for a loan.
The information in this article was current at 06 Dec 2011

Keywords: Tax-free Savings

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