Month: December 2016

What you need to know about TFSA

Since its introduction in 2009, Tax Free Savings Account has been getting a lot of attention and for good reason too.  When earned in a TFSA investment income (including capital gains and dividends) are not taxed even when withdrawn. The downside is that unlike Registered Retirement Savings Plans (RRSP), contributions made to a TFSA are not deductible for income tax purposes.
Moreover, the name is slightly misleading as it suggests that contributions must be cash in a savings account. Just like RRSPs, TFSA may contain other investments such as mutual funds, stocks (with some restrictions), bonds, or even Guaranteed Investment Certificates (GICs).

The table below captures the many changes to the TFSA contribution room since 2009:

TFSA Contribution limits
Years TFSA Annual Cumulative
2009-2012 $5,000 $20,000
2013 5,500 25,500
2014 5,500 31,000
2015 10,000 41,000
2016 5,500 46,500
2017 5,500 52,000


When is TFSA more advantageous than RRSP?

  • You expect to be a high earner in retirement
  • You expect to earn a considerable pension. In such a case the income from your pensions and your RRSP or RRIF withdrawals in retirement can place you in a higher tax bracket than when you were working.
  • You earn less than approximately $ 35,000 a year. If you are a low-earner, you benefit from forgoing RRSPs altogether. In retirement, withdrawals from RRSPs and RRIFs can result in Old Age Security and Guaranteed Income Supplement clawbacks.