What is the
Tax-Free Savings Account (TSFA)?
Canadians have quite a few choices on how to save money, and how to save on taxes, and recently yet another one was created - the Tax Free Savings Account, or TFSA.
Between RRSP's, RESP's, TSFA's, and so on, it can be a challenge to determine what's the right plan for you and your family.
Here's how a TSFA works:
Any Canadian resident aged 18 and older can save up to $5,000 a year in a TSFA, and the interest you earn during the year is not taxed, unlike a regular savings, chequing or investment account. The interest is not even taxed when you withdraw your savings.
Each and every year, you can put in another $5,000, it accumulates every year. So if you don't start one in 2009, you could contribute $10,000 in 2010, $15,000 in 2011, and so on.
Unlike an RRSP, the money you save in your account is not tax-deductible. However, when you withdraw the money, you don't pay taxes on it either (because you have already done that earlier).
So the biggest benefit of an TSFA is that you can save money (up to $5,000) per year without paying taxes on the interest you earn on it.
Actually quite simple, isn't it?
Most major banks, trust companies and financial service providers have the ability to open a TFSA for you. Make sure they offer a competitive interest rate, otherwise your gain is minimal, of course!
You can find the complete government regulation at www.tfsa.gc.ca/tfsapamphlet-eng.html