Tax free savings account a great option

It is a way for people who are 18 and older to set money aside tax-free throughout their lifetime.

  • Feb. 10, 2016 8:00 a.m.

The Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime.

Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn. Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not deductible.

A person determined to be a non-resident of Canada for income tax purposes can hold a valid SIN and be allowed to open a TFSA, however, any contributions made while a non-resident will be subject to a 1 per cent tax for each month the contribution stays in the account.

You can have more than one TFSA at any given time, but the total amount you contribute to all your TFSAs cannot be more than your available TFSA contribution room for that year.

Generally, interest, dividends, or capital gains earned on investments in a TFSA are not taxable either while held in the account or when withdrawn.

There are, however, certain circumstances under which one or more taxes may be payable with respect to a TFSA. The following sections provide information and examples of when and how these taxes are payable, and by whom.

Normally, in most TFSA situations, there is no tax payable, and therefore, a TFSA return is not required; however, where one or more of TFSA taxes are applicable a TFSA return is required must be filled out and sent by June 30, of the year following the calendar year in which the tax arose.

There are three types of TFSAs that can be offered: a deposit; an annuity contract; and an arrangement in trust. Banks, insurance companies, credit unions and trust companies can all issue TFSAs. For more information about a certain type of TFSA, contact a TFSA issuer.

Self-directed TFSA: You can set up a self-directed TFSA if you prefer to build and manage your own investment portfolio by buying and selling different types of investments. For more information, contact a TFSA issuer.

Be aware of these rules and restrictions

You can contribute up to your TFSA contribution room. A tax applies to all contributions exceeding your TFSA contribution room.

Withdrawals will be added to your TFSA contribution room at the beginning of the following year.

You can replace the amount of the withdrawal in the same year only if you have available TFSA contribution room. Direct transfers must be completed by your financial institution.

To open a TFSA, you must do the following

Contact your financial institution, credit union, or insurance company (issuer); and provide the issuer with your social insurance number and date of birth so the issuer can register your qualifying arrangement as a TFSA. Your issuer may ask for supporting documents. If you do not provide this information or provide incorrect information to your issuer, the registration of your TFSA may be denied. If your TFSA is not registered, any income that is earned will have to be reported on your income tax return.

Your federal income-tested benefits and credits such as: old age security (OAS) benefits, the guaranteed income supplement (GIS), or employment insurance (EI) benefits will not be reduced as a result of the income you earn in your TFSA or the amount you withdraw from your TFSA.

The income earned in the account or amounts withdrawn from a TFSA will also not affect your eligibility for federal credits, such as the Canada child tax benefit (CCTB), the working income tax benefit (WITB), the goods and services tax/harmonized sales tax credit (GST/HST), or the age amount.

You can withdraw money from the TFSA at any time, for any reason, with no tax consequences, and without affecting your eligibility for federal income-tested benefits and credits. More information is available online at http://www.cra-arc.gc.ca/tfsa.

 

Just Posted

City of Wetaskiwin saves nearly $1M, restructures staff

‘Streamlining’ results in 10 positions eliminated at City of Wetaskiwin

Team Alberta ends Games strongly with 44 medals in week one

Alberta is currently sitting in second place of the medal standings

PHOTOS: Alberta male team takes silver in Winter Games relay speed skating

Alberta was close behind Quebec in the team relay speed skating finals

Alberta was crowned champions in Wheelchair Basketball at Canada Winter Games

Ontario won silver while Quebec took home the bronze medal

Maskwacis RCMP seek three in home invasion case

Maskwacis RCMP investigate home invasion

National Energy Board approves Trans Mountain pipeline again

Next step includes cabinet voting on the controversial expansion

Red Deer RCMP seek assistance in locating missing elderly male

Mr. Routly’s family is concerned due to the fact that he suffers from a mild form of dementia

A ‘warm embrace’ for grieving parents at funeral of seven young fire victims

Mourners offered love and support to Kawthar Barho, mother of seven children

Pink Shirt Day a reminder to ‘T.H.I.N.K.’ before posting on social media

‘Be Kind’ message on shirts sold for anti-bullying activities of Wednesday, Feb. 27

Indigenous leaders, politicians say Trans Mountain report flawed

The National Energy Board has endorsed an expansion of the Trans Mountain pipeline a second time

WATCH: Pet therapy brings calmness to Winter Games athletes

Canada Winter Games in Red Deer continue on until March 2nd

R. Kelly charged with 10 counts of sexual abuse

R&B star has been accused of sexual misconduct involving women and underage girls for years

Child advocacy centre raising funds through Dream Home Lottery

The child advocacy centre in Red Deer uses its resources to help kids all over Central Alberta

Trudeau tells Canadians to listen to clerk in SNC-Lavalin matter

Privy Council clerk Michael Wernick delivered a blunt assessment at the House of Commons justice

Most Read