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Essential questions about TFSAs

Wondering about TFSAs? Read on for answers to your questions.

No. As soon as you turn 18, your contribution room begins accumulating each year, even if you earn no income.

No. Since TFSA withdrawals are not taxable, they cannot affect your eligibility for federal benefits and credit based on income, such as the Canada Child Tax Benefit (CCTB), the Working Income Tax Benefit (WITB), the Guaranteed Income Supplement (GIS) or the Goods and Services Tax credit.

Since TFSA investment income and capital gains are tax-sheltered, capital loss sustained in your TFSA cannot be deducted to compensate for other taxable gains.

Yes. The selection of investment products in TFSAs is similar to RRSPs. Financial institutions generally offer a complete range of TFSA investment products, such as:

  • TFSA savings account
  • market-linked guaranteed investments
  • fixed-rate investments
  • investment funds
  • stocks and other securities

Yes. The key is not to exceed the overall allowable annual contribution limit applicable to all the accounts held.

For more details, see TFSA beware of overcontributions (PDF, 198 KB) - This link will open in a new window..

A 1% monthly tax applies to all contributions exceeding the eligible amount, starting on the month you exceed the limit and for each month the contributions remain in the account. This penalty will continue to apply until either you withdraw the entire surplus, or the surplus can be absorbed by your contribution limit, whichever happens first.

Under government rules, only individual TFSA accounts are allowed. However, you can contribute the maximum to your TFSA and give your spouse, or children who have reached the age of majority, money to contribute to their TFSAs, regardless of income splitting rules. In this way, you invest a lot more money in a tax shelter while benefiting your family, as the assets remain the legal property of your spouse or children.

Yes. You can use your TFSA to save up for buying a home since TFSA investment income and withdrawals are tax-free. If you're buying your first home, another smart move would be to transfer money from your TFSA to an RRSP when your income is higher.

The RRSP contribution will lower your income taxes, and you will be able to use money from your RRSP to make a downpayment through the Home Buyers' Plan (HBP). Remember to keep the amount you contributed in your RRSP for 90 days before withdrawing it.

Yes. You can transfer some non-registered investment products–such as redeemable term savings–to a TFSA. However, such a transfer could be taxable since it is deemed to have been disposed at the investment's fair market value.

For example, if the value of your transferred asset has increased, your capital gain will be accounted for at the time of the transfer. However, any capital loss will be deemed nil and cannot be used to reduce other taxable gains.

As long as you are not a resident, you may not make TFSA contributions and no contribution room accumulates, but you may keep your TFSA. Your investment income and withdrawals will continue to be tax-free in Canada. You may contribute your allowable annual maximum limit to your TFSA up to the day you cease to be a Canadian resident.

No, TFSAs are not included in family patrimony, because they are not part of a retirement plan. Although several people use TFSAs to save for retirement, the account was not designed for that purpose.

Yes, your TFSA can be directly transferred to your ex-spouse tax-free under a court order, decree or written agreement. The transfer will not affect unused TFSA contribution room for either spouse.

However, this transfer will not create contribution room for the TFSA holder. If you wish to recover your TFSA contribution room for the following year, you would be better off withdrawing the amount from your TFSA and making out a cheque to your ex-spouse.

If your TFSA is transferred to your spouse by a will bequest or otherwise, it is transferred to your spouse's TFSA without affecting his or her contribution room. These savings will continue to be tax-sheltered.

Until further notice, in Quebec, if your spouse is your heir, the income earned in the TFSA between the date of your death and the time of the transfer will be paid to your spouse and will be taxable.

Unlike RRSP contribution room, your unused TFSA contribution is forfeited at your death. Your succession will not be able to contribute to your TFSA after your death for your spouse's benefit.

Individuals can obtain information about their contribution room in the My Account section of the Canada Revenue Agency website and on their previous year's notice of assessment.

Notices of assessment are normally sent out a few weeks after the annual tax return is filed, between March and June.

Up-to-date information is available on the Canada Revenue Agency website. New forms, policies and guidelines are posted on the site as they become available.

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