Tax-Free Savings Accounts (TFSA) were introduced to Canada in 2009. This is a way for people who are age 18 and above to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposed. Any amount contributed as well as income earned in the account is generally tax-free, even when it is withdrawn. Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not deductible.
Who can open a Tax-Free Savings Account?
Any individual who is 18 or older with a valid social security number is eligible to open a TFSA.
In certain provinces and territories the legal age at which an individual can enter into a contracts, such as TFSA’s, is 19. Therefore some may not be able to open an account until they are 19.
If you are become a non-resident of Canada for tax purposes you are able to maintain your TFSA and will not be taxed in Canada on any earnings in the account or on withdrawals from it.
No TFSA contribution room will accrue for any year throughout which you are a non-resident of Canada and any withdrawals made during the period that you are non-resident will be added back to your TFSA contribution room in the following year, but will only be available if you re-establish your Canadian residency status for tax purposes.
You can contribute to a TFSA up to the date that you become a non-resident. The annual TFSA dollar limit is not pro-rated in the year of emigration or immigration.
Opening a TFSA
To open a TFSA you must contact your financial institution, credit union or insurance company and provide the issuer with your social security number and date of birth. This is so that the issuer can register your qualifying arrangement as a TFSA.
You can be the owner of more than one TFSA, however the total amount you contribute to all of your TFSAs cannot be more than what is available to your contribution room for that year.
Types of TFSAs
There are three types of Tax-Free savings accounts that are currently available:
· A deposit
· An annuity contract
· An arrangement in trust
You can also set up a self-directed TFSA if you would rather build and manage your own investment portfolio by buying and selling different types of investments.
Types of investments allowed
The type of investments that are generally permitted in a TFSA are the same as those permitted in a registered retirement savings plan. This would include:
· Mutual funds
· Securities listed on a designated stock exchange
· Guaranteed investment certificates
· Certain shares of small business corporations