Who is a TFSA best suited for?
TFSA is best suited for any Canadian resident who is over 18 with a Social Insurance Number and who would like to save including:
- Individuals who want to access to funds on a tax-free basis before retirement.
- Individuals who have maximized their RRSP contributions.
- Seniors who have savings and are concerned about their investment earnings impacting federal income-tested benefits or credits (i.e. such as Old Age Security benefits, the Guaranteed Income Supplement, or the federal age credit.)
Who is eligible for a TFSA?
All Canadian residents age 18 and older with a Social Insurance Number can open a TFSA.
The age of majority is 19 for residents of Newfoundland and Labrador, New Brunswick, Nova Scotia, British Columbia, Northwest Territories, Yukon and Nunavut which may delay the opening of a TFSA. However, the accumulation of contribution room will start at age 18.
How is a TFSA different from an RRSP?
- Withdrawals from a TFSA are tax-free and do not result in lost contribution room.
- Contributions to a TFSA are not tax deductible.
- With a TFSA you don’t need earned income to accumulate contribution room.
- There is no requirement to convert the TFSA to an income payment option (i.e. RRIF) at any age.
- You can give money to your spouse to open a TFSA without being subject to the Canada Revenue Agency’s (CRA) attribution rules.
If I am unable to contribute in a given year, will I be able to use my unused contribution room in a future year?
Your unused contribution room can be carried forward indefinitely. There is no limit on how much contribution room you can accumulate. Also, TFSA contributions are in addition to any RSP contribution room you may have.
Are withdrawals subject to income tax?
No. Withdrawals can be made tax-free and will not increase your income for the year. Since withdrawals will not be taxed and will not be considered taxable income, there will be no impact to your income-tested benefits from the Federal Government, such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS) or credits such as the Age Credit.
Can I contribute to my spouse or common-law spouse’s TFSA?
No. However, money you give to your spouse to contribute to his or her TFSA will not be subject to CRA’s income attribution rules. The TFSA allows both you and your spouse to earn tax-free investment income, regardless of which spouse contributed the funds.
If there is a breakdown of a marriage or common-law partnership, what will happen to my TFSA?
TFSA assets may be transferred between spouses or common-law partners on marriage or relationship breakdown but the transfer will not reinstate contribution room of the transferring spouse or reduce the contribution room of the receiving spouse.
If I become a non-resident while I have a TFSA can I still make contributions?
If you become a non-resident, you are able to maintain your TFSA and will not be taxed on any earnings or withdrawals in the account. However, you will not be allowed to contribute additional funds and no contribution room will accrue for the years in which you are a non-resident.
Can I open more than one TFSA?
Yes. You can open more than one TFSA but, the total contributions to all your TFSA accounts cannot be more than your maximum contribution room for that year plus any carry forward room.
For example, your maximum contribution limit for 2009 will be $5,000, therefore you can open one TFSA to which you contribute $3,000 and another TFSA to which you contribute $2,000, so your total combined TFSA contributions equals the maximum of $5,000.