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Available since January 2nd, 2009
What is a Tax-Free Savings Account (TFSA)?
The Tax-Free Savings Account is a method of saving where your money grows in a tax-sheltered environment. You can contribute up to $5,500 per year, regardless of your income. Income earned on the investment (interest, dividends or other) and capital gains are not taxable.
For example, a person who contributes $200 a month in a TFSA over 20 years (based on a return of 5.5% and an average tax rate of 21% on the income invested) would have $11,045 more available than if she had contributed these sums to a non-registered account.
In the event that you contribute less than the maximum allowed, the unused contribution can be carried forward to subsequent years. In addition, when proceeding to a withdrawal from your TFSA account, the amount withdrawn can be added to the contribution room in the following calendar year.
Who can open a Tax-Free Savings Account?
Anyone (apart from trusts) aged 18 or older, residing in Canada and who has a social insurance number can open a TFSA.
What is the purpose of a TFSA?
As its name says, the purpose of the Tax-Free Savings Account is to save. Depending on your needs, it can be used for retirement, short and medium term projects such as purchasing a house or a car, renovations, a sabbatical, etc. or simply just to build up some savings.
What type of investments can be held in a TFSA?
A self-managed TFSA allows you to invest in a wide variety of investment solutions such as stocks, bonds, mutual funds and guaranteed investment certificates (GICs).
* The maximum amount will be indexed annually based on the consumer price index and rounded off to the nearest $500.
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