Tax Free Savings Account (TFSA)

The Tax-Free Savings Account (TFSA)

The Tax-Free Savings Account (TFSA) allows Canadians, age 18 and over, to set money aside tax-freethroughout their lifetime
All income earned and withdrawals from a TFSA are tax-free

Any individual who is 18 years of age or older and is a resident of Canada is eligible to open a TFSA account

You get a contribution room of $5,000 per year for years 2009, 2010, 2011 and 2012, $5,500 2013 and 2014, $10,000 for 2015, 2016 for $5,500, 2017 for $5,500 (provided you were 18 or older in the year)
You will accumulate contribution room for each year even if you do not file an income tax and benefit return or open a TFSA.
Unused contributions can be carried forward forever
Withdrawals increase (replenish) the TFSA; this means that current year withdrawals will be added to your TFSA contribution room at the beginning of the following
If you make a withdrawal, you need to wait till next year before you can re-contribute (unless you have the room to contribute it back this year – see below)
You can make spousal TFSA contributions, no attribution rules apply to TFSA

Shares listed on the stock exchange (publically trades shares) – no tax on capital gains
Mutual Funds
Bonds – no tax on interest
Annuities
Cash
Guaranteed investment certificates (GICs)
Certain shares of small business corporations (you, your spouse or a related party cannot own > 10% of the shares)

Contribution Limit formula =

Unused Contribution Room from last year

+ $5,500 for current year (2017)

+ TFSA Withdrawals from last year

– Contributions made to date in the current year

Note:

Annual dollar limit from 2009-2012 = $5,000
Annual dollar limit for 2013, 2014 =$5,500
Annual dollar limit for 2015 = $10,000
Annual dollar limit for 2016, 2017 = 5,500
So if you did not contribute anything at all into a TFSA yet you have a contrib. room of $5,000*4 + 5,500*4 + 10,000 = $52,000

“In-kind” contributions can be securities you hold in a non-registered account as long as the investment is one of the qualifying investments mentioned above.
There will be a deemed disposition of the investment at its fair market value (FMV) at the time of the contribution to the TFSA
If the cost of the investment is more than its FMV, you cannot claim a capital loss. However, if the fair value > than the cost; there will be a capital gain
- Therefore, the rules make it very unfavourable to transfer investments to a TFSA
The amount of the contribution to your TFSA will be equal to the FMV of the property.
You are still subject to the contribution limit

Not all TFSA investments are liquid
You can have GIC’s in your TFSA, the problem is that there are maturity dates you need to adhere to; however, you can still pull out the interest tax-free
Attribution rules stop when under a TFSA;
- therefore income earned from a spousal TFSA contribution does not get attributed back to the contributing spouse
You are allowed to invest in foreign investments; however, the dividend income may be subject to foreign withholding taxes