Canadians need to save for many different purposes over their lifetimes. Reducing tax on savings can help. That is why the Government has introduced the Tax-Free Savings Account (TFSA) in 2009. It is the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).
The TFSA allows Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. Your TFSA savings can be used for any purpose, such as maximizing your savings in a tax free environment or to purchase a new car, renovate a house, start a small business or saving to take a vacation. Canadians from all income levels and all walks of life can benefit.
Accumulated Contribution Limit
* In future years, the TFSA annual contribution limit is indexed to inflation, and rounded to the nearest $500. For 2019 the TFSA limit is expected to increase by $500. At the current 2.2% rate of inflation, the TFSA limit will increase to $6,500 in 2023.
Where an investor (referred as TFSA account holder) is non-compliant with the CRA TFSA rules, the holder will result in penalties, for reasons such as:
-TFSA Excess Contributions
-Tax payable on non-qualified or prohibited investments
The holder is subject to special tax on advantages, being 1% per month penalty for any month in which there is an excess amount in the TFSA at any time in the month. As a result, there is tax payable even if the excess amount is withdrawn in the same month in which it is contributed.
The TFSA unused contribution room is carried forward into the next year, there is no deadline for TFSA contributions. It is recommended to make withdrawals by December 31st in any year in order to have the amount withdrawn added back earlier to the accumulated TFSA contribution room in January of the following year.
Updated: November 2019
Macnaughton & Ward Financial represents numerous Financial Institutions offering TFSA’s in the form of High Interest Accounts, GIC’s, Investment Funds, Segregated Funds, Equity Linked GIC’s and more.