These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
Tax Free Savings Accounts (TFSA) are a newer tax efficient investment account that share some similarities with RRSP but have notable differences. TFSA accounts were introduced in 2009. Like RRSP, all investment growth within a TFSA (interest, dividends, capital gains) can accumulate tax free. You can hold many different types of investments like GIC, Mutual Funds, stocks and bonds within a TFSA.
The biggest difference between TFSA accounts and RRSP is that contributions do not reduce your taxable income and withdrawals are not taxed (given that the original contribution/deposit did not reduce income tax). In some respects, this provides TFSAs with some greater conveniences and flexibility than RRSPs.
There are annual contribution limits limiting the amount that can be deposited/contributed. For 2017, the limit is $5,500. Unused annual contributions continue to accumulate so the maximum total deposits that can be made to a TFSA are $52,000 (as of 2017). Anyone over the age of 18 can contribute to a TFSA (unlike RRSP where you must have earned income to make a deposit).
Monies withdrawn from a TFSA are not taxed, however there are repayment rules that you should be aware of when repaying withdrawals. It is best to speak with/consult with an investment specialist to ensure you are aware of the repayment rules and limits to ensure you avoid overpayment penalties.
TFSA are a great supplement to RRSP for those who may have maximized their RRSP limits, can serve as an income splitting strategy, are a great savings vehicle. It is best to speak with an investment specialist to determine which tax efficient account or combination of accounts (ie RRSP vs TFSA) are best for your family and individual situation and which investments are best suited for your needs and objectives.
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