Starting in 2009, Canadian residents who are over 18 years of age will be eligible to contribute $5,000 per year to a TFSA (Tax Free Savings Account). Unused contribution room will be carried forward. Any investments inside this account (which is registered) will be tax-exempt and allowed to grow on a tax free basis.
In fact, to understand this account, think of it as like an RRSP except your contributions are not deductible. Conversely, the withdrawals are completely free of tax as well. The other major difference is that when you do make a withdrawal – you are credited with an equal amount of new contribution room being generated!
Income earned inside the account and withdrawals from the account WILL NOT affect eligibility for federal income-tested benefits and credits (this is a good thing)
You can contribute to a spouse or common-law partner’s TFSA
Assets in the plan are transferrable to the TFSA of a spouse or common-law partner upon death.
You can hold any investment in your TFSA that you can hold in your RRSP
The $5,000 contribution limit will be indexed to increase with inflation in $500 increments
More to come on the budget and strategies for the TFSA (don’t know if I’ll come up with 41 this time….)
If you like this blog, you might like my book:
RRSPs: The Definitive Book on Registered Retirement Savings Plans