Basic information about TFSAs

In 2009, the Canadian government allowed Canadians to benefit from the Tax Free Savings Account. Here are some basic facts about this new way to save and how it affects you.

· All Canadians over 18 years of age can open a TFSA
· Annual limit is $5,000.00
· Any interest, investment income or capital gains accumulated from this account will not be taxed
· The annual $5,000.00 limit can be carried forward if not used in the year
· Funds can be re-contributed without losing the allowable limit if you withdraw for whatever reason – unlike the RRSP room
· All deposit and withdrawal amounts have to be managed like a RRSP account by the financial institution because you will be penalized if you over-contribute
· If you plan to withdraw from your TFSA, you should do it close to the end of the year, and then you can re-contribute early next year. That is, if you contributed to the limit already. If you do it in the same year, it is considered over-contribution and subject to penalty. The same rule will apply to income from prohibited investments in TFSA.
· You can contribute to your spouse’s account
· Anybody who contribute to a savings account should start a TFSA to maximize the $5,000.00 limit before putting money in the regular savings account