Tax Free Savings Accounts

In an effort to encourage Canadians to save and to provide a tax break, the federal government recently announced the Tax-Free Savings Account (TFSA) in the February 26, 2008 federal budget.

Here are some of the highlights that will be of interest to you:

• Eligibility – every Canadian 18 years of age or over
• Amount – annual contribution of up to $5,000 to a TFSA.
• Accumulation – any year that you do not contribute the full $5,000, you will build up contribution room to be used in future years
• Registration – will be registered similar to how RSP’s are registered
• Tax Deductibility – contributions are NOT deductible for tax purposes
• Withdrawals – accumulated amounts may be withdrawn as needed and at any time – the tax benefit will not be lost. When amounts are withdrawn – the taxpayer will gain contribution room equal to the withdrawal.
• Taxable Income – any interest, dividends, capital gains or other income earned in the TFSA is non-taxable
• Effective – the program comes into effect in 2009
• Inflation – the $5,000 annual limit will be increased based on inflation and rounded to the nearest $500

As you can see, this tax-savings account is an excellent opporutnity for Canadians to invest into while earning tax-free investment income.