Savings are an important part of your investment portfolio – and your peace of mind. They also help you invest in your future and improve your standard of living, and contribute to the country's economic growth.
The 2008 federal budget included several proposals to reduce taxes and promote savings, as part of an ambitious economic agenda intended to create a Canadian tax advantage. The Tax Free Savings Account (TFSA) is one of the new initiatives proposed, and if it passes into law, it will start in 2009.
The TFSA is a flexible, general-purpose, tax-efficient savings vehicle that complements existing registered savings plans. Under the proposed terms of the account, individuals over the age of 18 will be allowed to contribute up to $5,000 a year in tax-free savings.
While contributions are not tax-deductible, capital gains and other investment income earned in a TFSA will not be taxed, and withdrawals will also be tax-free. Unused room can be carried forward, and withdrawals will create contribution room for future savings. Contributions to a spouse's or common-law partner's TFSA will also be allowed.
You stand to benefit from a TFSA in many ways. It is ideal for saving for major purchases, such as a car or home renovation, and provides an attractive alternative for retirement savings, as there are no tax consequences on withdrawals. If you are over the age of 71, it offers a much-needed tax-efficient savings vehicle.
The types of investments that qualify for a TFSA are about the same as those for a RSP, and include mutual funds.
Get independent thinking working for you!
Click here to request a tax planning kit.
