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ARTICLE · 11 NOVEMBER 2010

Do You Have Your TFSA Yet?

Borden Ladner Gervais LLP
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Recent surveys suggest that many Canadians are not saving enough to enjoy a comfortable retirement. With the overall population aging and baby boomers reaching retirement age, this is a serious concern.

CanadaTax
Ross Freeman
Ross Freeman
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Recent surveys suggest that many Canadians are not saving enough to enjoy a comfortable retirement. With the overall population aging and baby boomers reaching retirement age, this is a serious concern. One way the Canadian government has reacted to this problem is by introducing the Tax-Free Savings Account (TFSA) in 2009.

The rules for a TFSA are simple. Every individual 18 years of age or older can contribute up to $5,000 (indexed for inflation) per year to a TFSA. A TFSA is basically the opposite of a Registered Retirement Savings Account (RRSP) where contributions are tax deductible, but withdrawals are fully taxable. This means that even though the RRSP may have earned capital gains over the years, the profits will be taxed on withdrawal as ordinary income. In contrast, there is no tax deduction for a contribution to a TFSA. However, not only do earnings accumulate tax-free inside the TFSA, but money can be withdrawn from the TFSA, at any time, free of tax.

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