The Tax Free Savings Account (TFSA) was introduced in 2009 to encourage Canadians to save additional funds in a tax efficient manner.
To be eligible to open a TFSA you must be a resident in Canada and have a Social Insurance Number and be 18 years old. There is no maturity date on a TFSA and it doesn’t need to be wound up or converted to a different investment vehicle as with RRSP’s. You can contribute to a TFSA without filing an income tax return. You will need to track your own contributions and determine your limit. CRA can verify your contribution room. Penalties for over contributions to a TFSA can be significant.
The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.
The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
The annual TFSA dollar limit for the year 2015 was $10,000.
The annual TFSA dollar limit for the year 2016 was $5,500.
The annual TFSA dollar limit for the year 2017 and 2018 wass $5,500.
The annual TFSA dollar limit for the years 2019, 2020, 2021 and 2022 was $6,000.
For a total contribution limit as of 2022, of $81,500.00.
The investment you accumulate in a TFSA can be withdrawn at any time without tax consequences, and without affecting any federal income tested benefits or tax credits you may be eligible for. These benefits and credits include Old Age Security, Guaranteed Income Supplement, age credit, GST credit and Canada Child Tax benefit. There are no limits for withdrawing and no restrictions on how you spend your money. Withdrawals increase your contribution room in the year after the withdrawal, allowing you to save again for another purpose.
Unused contributions to TFSA can be carried forward, allowing you to contribute in any given year. Contributions to a TFSA are not deductible against your income tax. Although you cannot contribute directly to your spouse or common law partner’s TFSA; you could make a gift of money which they could then contribute to their own TFSA without the investment income being subject to the normal attribution rules as long as the investment remains in the TFSA.
Usually, the value of the TFSA at the time of death can be paid out, tax free to your beneficiary, directly to your spouse or paid to your estate. The amount of the TFSA is not included in the income of the deceased TFSA holder in the year of death.
A TFSA held in a Canadian life insurance company investment has an advantage in the case of death due to the following:
1) The value of the policy goes directly to the named beneficiary(ies), bypassing the estate and any applicable probate fees or estate administrative taxes.
2) You can protect a specified amount of your initial investment with the various death benefit guarantee options available (75% or 100%), meaning your beneficiary receives a minimum amount regardless of the market value at death. This death benefit protects your investment from significant stock and bond market fluctuations.
Seek quality advice from a financial advisor to see where a TFSA would fit into your financial plan today.