Advantages Of A Tax Free Savings Account

MAR 7, 2017

written by: Evelyn Suvajdzic

The Tax Free Savings Account (TFSA) was created on January 1, 2009 with the intention of helping Canadians 18 and older to save money. The purpose of the TFSA is to provide Canadians with the opportunity to save money and earn investment income on a tax-free basis. Following is a list of the major benefits of contributing to a TFSA:

  • You can withdraw any amount at any time tax-free.
  • Withdrawals from your TFSA do not reduce federal income-tested credits such as Old Age Security or GST rebates.
  • Any withdrawals taken out during the year will not reduce your contribution amount. You can contribute up to a maximum of $5,500 for 2017 and any withdrawals during the year can be added back in the following year on top of the maximum $5,500.
  • TFSAs side-step attribution rules - a higher income spouse can give money to a lower income spouse to allow them to contribute to a TFSA without any tax consequences.
  • You can borrow from your TFSA for other investments.
  • TFSAs can be set up as an emergency fund, as many people do not have an emergency fund for unexpected future events (i.e. losing your job, house repairs, etc.). Once an emergency fund has been established, you have the opportunity to use your TFSA for investment opportunities.
  • It is a great investment vehicle for inherited money.
  • You can hold stocks, bonds and term deposits.  Although it is called a “savings account”, it is more an investment account depending on which type of financial institution you hold your TFSA with.

TFSA strategies can vary over the years depending on your individual circumstances.  Since the TFSA began in 2009, as of 2017 you are eligible to contribute up to a maximum of $52,500 if you have not yet started a TFSA.  The amount you can contribute will appear on the Notice of Assessment you receive each year after filing your personal income tax return with the Canada Revenue Agency. Due to the tax avoidance advantages that come from a TFSA, it is very beneficial to start your own and contribute to it on an annual basis. Be certain to keep track of your contributions so that you do not exceed the maximum allowable amount as there are punitive penalties for over-contributing.