What’s a TFSA?
Tax free savings accounts were established by the federal government in January 2009 to encourage Canadians to save money. While it is called a “savings account”, it is not in fact something you need to set up through your bank or credit union. Like the now traditional RRSP’s this new tax instrument can have the same variety of investments included. You need to find investments that can provide a good rate of growth in order for a TFSA to have value. Traditional savings accounts are not likely to provide the growth you need to make the TFSA effective.
If you are 18 years of age or older you can open a TFSA. The government allows a contribution of $5000 a year. This does not seem like a significant amount of money, however the amount is cumulative so that in 2011 you can contribute $15,000 to your account, in 2012 the amount will be $20,000 etc.
Similar to the RRSP, the growth on the account is not taxed. The key and exciting difference about the TFSA is that the growth on the account is never taxed and neither are the contributions. You may also withdraw money at any time from the TFSA. You can replace the money that you withdrew in the following year, should you wish to do so.
Because the TFSA is tax neutral, withdrawal from the account will not impact on any of your old age security benefits.
For more information about the tax-free savings accounts please call 604-589-4884 or e-mail Ayoba@telus.net.