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January 02, 2022

Is Tax-Free Savings Account (TFSA) right for you?

By Joe Lee, Sympatico / MSN Finance

Initially, I didn’t think much of it. A $5,000 tax-sheltered investment option? Seriously, how much will that help fatten my wallet?! And may I say it’s a nice Louis Vuitton my mother gave me over Christmas. 

But after looking into it further – reading through the CRA’s website and playing around with our new TFSA comparison tool – I am suddenly a fan, or may be just enthusiastic enough to write a blog entry to help dissect this simple but yet complex savings vehicle introduced by the Conservative government.

We all know it's supposed to be tax-free savings. But what else do we know about this TFSA measure? We know you can roll over the extra contribution room to the following year, like the RRSP. We know the cap may not always stay at $5,000. It will fluctuate with our annual inflation rate. We know the investment options with the TFSA rules are beyond just the regular checking, savings and Guaranteed Investment Certificates (GICs). Mutual funds, securities listed on a designated stock exchange, bonds, and certain shares of small business corporations may also be included.

Unlike RRSPs, you don’t have to have an income for that previous year. You, your spouse, children… actually anyone above 18 in your family is eligible.

One little trick here though… it’s not as flexible in terms of depositing and withdrawal like a regular saving or checking account. For instance, if you put in $5,000 today in your TFSA account and decide to withdraw $1,999 in March. Although you are still eligible to exercise that contribution room of $1,999, you will have to wait till the following year to do so. That means in 2010, if our country’s inflation rate remains somewhat flat and the TFSA cap stays at $5,000, you may contribute up to $6,999 ($5,000 + $1,999 = $6,999).   

The best part of all this -- all capital gains from your TFSA accounts are tax-free. But at the same time, all losses cannot be reported for tax purposes.

For more information, please contact the Canadian Revenue Agency (CRA) or consult with your financial advisor.



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