TAX FREE SAVINGS ACCOUNT

**Introduced in January 2009**

Click here for the Top 10 Reasons Why You Should Have a TFSA

The Federal Government agrees that it’s important for all Canadians to save. And better still, they’ve just passed legislation to let you save without paying tax on the interest you earn. This means that soon all Canadians will be able to save up to $5,000 every year without being taxed on interest earned. This is great news for savers!

So what does this really mean? Soon you will have all the features that you have come to expect from your regular investments – like high interest, no fees, no minimums – PLUS the added benefit of no taxes on the interest earned in your Tax-Free Savings Account. Your hard earned money has already been taxed – now the interest it earns won’t get taxed again.

FEATURES OF THE TAX FREE SAVINGS ACCOUNT:

• All Canadian residents can open a Tax-Free Savings Account if they’re 18 years of age or older and have filed a tax return.
• The Tax-Free Savings Account will let you invest while not being taxed on the interest earned or investment earnings.
• You’ll be able to open Savings accounts, GIC’s and Mutual Funds… tax-free.
• Unlike an RSP, your contribution to a Tax-Free Savings Account will not be deducted from your income on your tax return, but the interest you earn will not be taxed – so you get to keep what you earn.
• You can contribute a maximum of $5,000 a year.
• If you take money out of your Tax-Free Savings Account, you don’t lose the contribution room – you get it back in the following year. This is important to remember, because if you take it out you will have to wait until the next year before you can put the money back in.
• If you don’t make the maximum contribution you don’t lose the contribution room. The unused contribution room gets carried over to the following year. There is no limit to how much contribution room can be carried forward.
• You can hold more than one Tax-Free Savings Accounts with a number of financial institutions but the total of the contributions must be within your total contribution limit in that year.
• Money you take out of your Tax-Free Savings Account will not affect federal income-tested benefits and credits, so you’re not penalized for saving.
• Each year, the government will determine your remaining available Tax-Free Savings Account contribution limit.

Saving for a lifetime

Compared to RRSPs, which are tailor-made to help you save for retirement, the TFSA is there to help with all the things you want to do before and during retirement. How? Aside from the flexibility and tax advantages the TFSA will offer you when the time comes to use your savings, the withdrawals you make won’t reduce the federal income-tested benefits or credits to which you’re entitled. This means that you’ll have the money you need for those special projects or for unexpected expenses without affecting your Old Age Security benefits, for example, or your Canada Child Tax Benefit. And, in contrast to the rules in effect for RRSPs, you can continue contributing to your TFSA after age 71.

TFSA or RRSP?

Is the TFSA replacing the RRSP? Not at all. They’re complementary tools that most people will probably want to use together, depending on their needs. The advantages you could draw from each one of these plans will depend on the difference between your taxation rate when you make the contributions and the one you are subject to when you make withdrawals.

If you would like to have a reminder email sent to you in January 2009 when the TFSA is available, send an email to janea@janeabellay.com with JANUARY 2009 in the subject line.

For More Information, check out the Government’s Tax-Free Savings Account information page online at www.cra-arc.gc.ca/agency/budget/2008/taxfree-e.html.