Making the Most of Your Tax-free Savings Account At the beginning of the new year, contributing to a Tax-Free Savings Account (TFSA) is usually a top priority. The account is a key saving tool after all. However, according to recent data, not all Canadians are getting the full value out of their TFSA. In a survey conducted by BMO in 2020, it was shown cash is the primary choice for most Canadians, meaning most are using TFSA for savings rather than investing. While having a TFSA account is a good move, utilizing it for investment is a more efficient use of the account – here’s why. The Tax-Free Savings Account was introduced in 2009, allowing anyone with a valid Social Insurance Number and over the age of 18 can open one. In 2009, it was started at $5,000 per person, with that contribution limit fluctuating over the years. The History By 2013, the limit was increased to $5,500 per person and jumped to $10,000 in 2015 per person. This increase was short-lived when the limit was reduced back to $5,500 in 2016. In 2019, it increased to $6,000 per person and remains at that number today in 2022. If Canadian’s don’t contribute the full amount to a TFSA in a given year, they don’t lose the contribution room, it simply rolls over to the next year. If you were 18 or older in 2009 and have never contributed to a TFSA, your total contribution room is $81,500. Once the money is in the account, you have the opportunity to make multiple investments. Stocks, bonds, GICS, mutual funds and alternative investments – the selection of acceptable TFSA is large. While the name may be misleading, there is such a large selection of permitted investments that it’s arguable that it isn’t a savings account – but rather, it’s more of an investment account. More Information If you contribute more than your available limit, you will be penalized 1 per cent per month, and it is charged on the excess contribution amount. If you aren’t sure how much contribution room you have remaining, there are ways you can check. If you have an account with the CRA you can log in and check your TFSA room online. You can also call 1-800-267-6999 and talk to the Tax Information Phone Service (TIPS). You don’t receive a tax deduction for your TFSA contribution, however, once the money is in the account, any potential growth in the investment is also considered tax-free. Whether your investment grows by two per cent or seven per cent, all that retroactive growth is tax-free. You can also withdraw money at any time without suffering any tax consequences.
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