The Tax Free Savings Account (TFSA) is an important investment vehicle for Canadians looking to save money and minimize their taxes
The following are quick facts about the TFSA:
~ Whatever you are saving for, it will help by saving taxes on the investment income.
~ Eligible Canadians can contribute up to $5,000 every year.
~ You don’t require earned income.
~ Unused TFSA contribution room can be carried forward.
~ Contributions are not deductible for income tax purposes
~ Funds can be withdrawn for any purpose at any time (depending on what you invested in).
~ The amount withdrawn will be added to unused contribution room and can be re-contributed starting the following year.
Differences between an RRSP and a TFSA:
~ While an RRSP is primarily intended for retirement, the TFSA is intended for use as needed. Both plans offer tax advantages, but they have key differences:
~ Contributions to an RRSP are deductible and reduce your income for tax purposes. In contrast, TFSA contributions will not be tax deductible.
~ Withdrawals from an RRSP are added to your income and taxed at current rates. TFSA withdrawals and growth within the account will not be taxed.
~ TFSA withdrawals will not result in lost contribution room.
~ 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.
The TFSA is a perfect complement to an RRSP and we recommend both to minimize taxes. For those not able to maximize RRSP and TFSA contributions, consider contributing to an RRSP and using the tax refund to start a TFSA.
Mark Styranka
www.MajecAccounting.com 
