Francesca Giroux, CPA
For the Lakeside Leader
A tax free savings account (TFSA) is a great way to set aside money tax-free throughout your lifetime. The initial amount contributed as well as the income earned in the account (i.e. investment income or capital gains) is tax-free, even when the amounts are withdrawn. To open a TFSA you should contact your financial institution, credit union or insurance company (issuer). In order to set up an account you will be required to provide your social insurance number (SIN) and date of birth so that the account can be registered with the Canada Revenue Agency (CRA).
Depending on the type of investment held in your TFSA (i.e. savings account), you can usually withdraw any amount from the TFSA at any time for any reason, without tax consequences. Withdrawals are added back to your TFSA contribution room in the next year. If you withdraw $2,000 in 2017 from your TFSA you cannot contribute another $2,000 in 2017; however, there will be a $2,000 increase in your contribution room for 2018.
The TFSA contribution for 2017 is $5,500 plus any unused TFSA contribution room carried forward plus any withdrawals made from the TFSA in the previous year. Investment income earned, and/or changes in the value of investment held in the TFSA do not affect the TFSA contribution room for the current year or any future year. If you contribute an amount to your TFSA greater than your contribution room, even if you make withdrawals from the account during the year you will be subject to a tax of one per cent of the highest excess TFSA amount in the month, for each month you are in excess of your contribution room for the year. For example, if your contribution room for 2017 (assuming no unused TFSA contribution room from prior years) is $5,500 and you have contributed $10,500 in January 2017 and withdraw $5,000 in March 2017 you will be penalized $150.00 ($5,000 excess X .01 X 3 months).
Remember unlike RRSPs, the amount contributed to a TFSA is not tax deductible.
Please e-mail your questions to [email protected]
Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CGA for information specific to your own needs.