is unlike anything Canadian investors have seen before and will be an important
investment option for Canadians looking to save money and minimize their
taxes,” says David Birkbeck, head, registered products strategy, RBC®. “Whether
part of a long-term savings strategy or to meet short and long-term financial
goals, our role at RBC is to help clients understand
how they can get the most benefit from the TFSA.”
How does the TFSA work?
• Starting in January 2009, eligible Canadians can save up to $5,000
every year in a TFSA.
• Contributions will not be deductible for income tax purposes, but
investment income, including capital gains, earned in a TFSA will not be taxed,
even when withdrawn.
• Unused TFSA contribution room can be carried forward to future years.
• Funds can be withdrawn tax free for any purpose at any time (depending
on what you invested in).
• The amount withdrawn will be added to unused contribution room and can
be re-contributed starting the following year.
• Neither income earned nor withdrawals will affect your eligibility for
federal income tested benefits and credits, such as Old Age Security.
• Giving money to your spouse or common-law partner to contribute to
their TFSA will not be subject to the income attribution rules – i.e. there are
no tax consequences to either you or your spouse as long as the money remains
in a TFSA.
What is the difference between a Registered Retirement Savings Plan
(RRSP) and a TFSA?
While an RRSP is primarily intended for retirement, the TFSA can be used
for multiple purposes. Both plans offer tax advantages, but they have key
• Contributions to an RRSP are deductible and reduce your income for tax
purposes. In contrast, TFSA contributions will not be tax deductible.
• Withdrawals from an RRSP are added to your income and taxed at current
rates. TFSA withdrawals and growth within the account will not be taxed – they
will be tax-free.
• Withdrawals from a TFSA will not result in lost contribution room.
• With a TFSA you don’t need earned income to accumulate contribution
• There is no requirement to convert the TFSA to an income payment
option (e.g. a Registered Retirement Income Fund (RRIF)) at any age.
“The TFSA is a perfect complement to an RRSP and we recommend Canadians
maintain both to minimize taxes,” says Birkbeck. “For those not able to
maximize RRSP and TFSA contributions, consider contributing to an RRSP and
using the tax refund to start a TFSA.”
How you use a TFSA depends on your own personal needs and goals. For
more information on the TFSA please visit your nearest RBC branch, call
1-866-756-1106 or visit:
www.rbc.com/firsttfsa. For more information on other RBC products and services for newcomers to
material in this Article is intended as a general source of information only,
and should not be construed as offering specific tax, legal, financial or
investment advice. Every effort has been made to ensure that the material is
correct at time of publication, but we cannot guarantee its accuracy or
completeness. Interest rates, market conditions, tax rulings and other
investment factors are subject to rapid change. Individuals should consult with
their personal tax advisor, accountant or legal professional before taking any
action based upon the information contained in this Article.
planning services and investment advice are provided by Royal Mutual Funds
Inc., a member company under RBC Wealth Management. Royal Mutual Funds Inc.,
RBC Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The
Royal Trust Company are separate corporate entities, which are affiliated.
Royal Mutual Funds Inc. is licensed as a financial
® Registered trademarks of Royal Bank of Canada. RBC and Royal Bank are
registered trademarks of Royal Bank of Canada. * The age of majority is 19
in certain provinces and territories, which may delay the opening of a TFSA.
However, the accumulation of contribution room will start at age 18.