Tax-free savings account (TFSA)

The TFSA will be available as of January 1, 2009, but several financial institutions are offering the product in advance (prepayment). Here is how it works.

  • Contributions are not deductible for income tax purposes, so they are made after you have paid your income tax.
  • However, the income accumulates tax-free, and withdrawals are not taxed.
  • The contribution period is the calendar year (January 1 to December 31).
  • The annual limit is $5,000, but this amount will be indexed.
  • Unused contribution room can be carried forward to future years.
  • Most financial products accepted for RRSPs will also be accepted for the TFSA (shares, mutual funds, GICs, etc.).

It is important, however, to point out that TFSAs will not replace RRSPs in most cases. The effect of the tax deduction for an RRSP increases the possibilities of long-term return, which is the major advantage of the RRSP over the TFSA.
The TFSA is meant to be a tool of choice for short- and medium-term savings needs such as financing a cottage, a car or travel, or simply building up a cushion. People who maximize their RRSP contributions will also have an additional tool at their disposal.

Given that this recent product offers a wealth of possibilities, please contact us before making any financial decisions so that we may help you determine the impact on your personal situation.

Marina Murzin

Principaux changements à l'impôt 2010 des particuliers Will this couple have to pay capital gains tax to the provincial or federal government?

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