Tax-Free Savings Account

Tax-Free Savings Account (TFSA), a type of savings account, is available for all Canadian residents age 18 or older.

TFSAs allow Canadians to save money on a tax-exempt basis for any financial goal: a long-term goal such as retirement or a house or a short-term goal such as a car or a vacation.
 

Start date: January 1, 2009.

Who's eligible: Canadian residents age 18 or older (Note that a Social Insurance Number must be provided to open and administer the account).

Contribution limit: From 2009 to 2012 the contribution limit is $5,000 per year. However for 2013 the limit rises to $5,500. Unused contribution room can be carried forward to future years. Any amounts withdrawn will also be added to contribution room in the following year.

Over-contribution penalty: The Canada Revenue Agency will charge a penalty of 1% per month based on the actual monthly over-contribution amount.

Deductibility: Contributions to a TFSA cannot be deducted for income tax purposes.

Tax on investment income: None. Investment income (including capital gains) earned in a TFSA is not subject to tax.

Tax on withdrawals: None. Investors can withdraw funds from a TFSA at any time for any purpose and will not be taxed or otherwise penalized.

Eligibility for federal income-tested benefits and credits: Income earned in a TFSA and withdrawals from a TFSA will not affect eligibility for benefits and credits such as the Canada Child Tax Benefit, Employment Insurance benefits, Guaranteed Income Supplement, Old Age Security benefits, Age Credit and Goods and Services Tax Credit.

Spousal TFSAs: Individuals can contribute to a spouse’s TFSA. Contributions made by an individual into a spouse’s TFSA are not subject to the income attribution rules (since income earned within the TFSA is not taxable). On death TFSA assets can be transferred to the surviving spouse or common-law partner without affecting the contribution room of the survivor.

Transfer rules: Individuals can transfer investments from an existing non-registered account into a TFSA, just as they can transfer investments from an existing non-registered account into a Registered Retirement Savings Plan (RRSP). The investments transferred are deemed to have been disposed at fair market value. This may trigger a capital gain which would be taxable and reported on an individual’s income tax return. If a capital loss is triggered, the loss may be denied under the superficial loss rules.

Tracking contribution limits: Each year, the government determines and advises individuals of their TFSA contribution limits for that tax year.
 

Call us at 1 800-263-4077 (toll free) or 416 307-5200. Fidelity representatives are available to speak to you from 8:00am to 8:00pm EST, Monday to Friday.

Or email your questions to cs.english@fmr.com . You can expect a reply within two business days.