Tax-Free Savings Accounts

A new way to save

As an opportunity to generate tax-free income, a TFSA can be an important part of your investment plan.

With a TFSA:
• You can contribute up to $5,500 every year and pay no tax on the growth and earnings of the account.
• The $5,500 annual contribution limit is indexed to the Consumer Price Index and rounded to the nearest $500.
• You can hold the same investments as registered accounts, including mutual funds, segregated funds, stocks and bonds.
• You never lose your contribution room. Any amount withdrawn from the account is added back to your contribution room for the following year.
• Unused contribution room can be carried forward indefinitely to future years.

Comparing Savings Vehicles
TFSA versus a non-registered account
Capital gains and other investment income earned in a TFSA are not taxed.  So, if you contributed $5,500 a year for 20 years to a TFSA, you could enjoy a total tax savings of $57,050 over a non-registered account.

Comparing TFSAs and RRSPs
TFSA                                                                

  • For virtually all savings and investment objectives
  • Contributions are made with after-tax income
  • Contribution room is added back when withdrawals are made
  • Withdrawals are tax-free
  • Contributions can be made any time for those age 18 and older
  • Can make a withdrawal at any age
  • Annual maximum contribution – $5,500 indexed to inflation

RRSP

  • Primarily for retirement savings
  • Contributions are tax-deductible
  • Contribution room is used up when withdrawals are made
  • Withdrawals are added to income and taxed at your current rate
  • Contributions cease at age 71 and must be converted to a RRIF by age 71; withdrawals after that age are mandated according to a schedule based on age
  • Annual maximum contribution – 18% of earned income in the previous year to a maximum of $24,270 in 2014