You can earn tax-free income on any amount up to $75,500 this year* and then $6,000 each year thereafter, for life, if you’ve not already opened a Tax Free Savings Account.
The Tax-Free Savings Account is a flexible, registered, general-purpose savings vehicle, that allows Canadians to earn tax-free investment income to more easily meet lifetime savings goals. The TFSA compliments existing registered plans like the Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), and the Registered Home Ownership Savings Plan (RHOSP).
- Canadian residents age 18 or older can contribute up to $6,000 annually (2022) to a TFSA.
- Withdrawals from a TFSA are tax-free.
- Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
- Unused TFSA contribution room is carried forward and accumulates for future years. No upper age limits as in RRSPs Deposits and/or withdrawals from a TFSA do not effect your eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
- TFSA assets can generally be transferred to a spouse or common-law partner upon death.
TFSA Tips
If you and a spouse have GICs maturing this year, consider reinvesting $6,000 each into a TFSA-GIC—within 5 years – you and your spouse combined could have more than $70,000 earning interest tax-free, and growing each year (assuming you have unused contribution room, otherwise up to your allowable limit).
Moreover, If you and your spouse have not taken advantage of an TFSA in the past – consider re-investing or converting non-registered investments, and have tax-free-income form a combined $127,000.00.
Two reasons not to open a TFSA would be that if you can pay down your mortgage, do that beforehand – and if you have credit card debt, work to reduce or eliminate it first.
Choose from a variety of investment options: A wide range of investments can be made in a TFSA such as: Guaranteed Investment Certificates (GICs), bonds, mutual funds, and securities listed on a designated stock exchange.
Watch investments grow Tax-Free
Whatever investments you choose for your TFSA, you can watch these investments grow Tax-Free.
For example, an individual contributing the maximum annually to a TFSA for 20 years (assuming an average annual return of 4.00%) will accumulate about $22,217 more in savings than if the investment had been made in a taxable savings vehicle.
*Illustration assumes an annual income of $50,000, resident of Ontario, and federal tax rate of .22%.
To view the chart for TFSA and other registered investment contribution limits, please visit the Government of Canada website.
