The Tax-Free Savings Account (TFSA) offers an array of tax benefits to help you invest throughout your life. It has been described as the single most important personal investment vehicle since the introduction of Registered Retirement Savings Plans (RRSP) back in 1957.
Flexible Investment and Tax Treatment
Like an RRSP, qualifying investments for your TFSA include: cash, GICs, mutual funds, publicly traded securities, government and corporate bonds. Contributions to a TFSA are not deductible for tax purposes, however, interest and investment income, including capital gains, earned in a TFSA is not taxable, even when withdrawn.
Tax-Free Savings Account Highlights
- Canadian residents age 18 (in most provinces) or older are eligible to contribute up to $5,000 annually to a TFSA, with unused room being carried forward.
- Contributions are not deductible.
- Capital gains and other investment income earned in a TFSA are not taxed.
- Withdrawals are tax-free.
- Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits.
- Withdrawals create contribution room for future savings.
- Qualified investments include all arm's-length RRSP qualified investments.
- The $5,000 annual contribution limit will be indexed to inflation in $500 increments.