Image via Wikipedia The Federal Government has passed legislation to let Canadians save without paying tax on the interest we earn. Soon, you will be able to save up to $5,000 every year without being taxed on interest earned. This is great news for savers, especially retired individuals. Below are some common questions that I’m sure you have thought about and answers to put your mind at ease:
What is a Tax-Free Savings Account?
A tax-free savings account or TFSA is a registered savings account that allows Canadian taxpayers to earn investment income tax-free inside the account.
When can I open a TFSA?
According to the 2008 budget, you can open a TFSA starting in 2009.
Are contributions to the tax-free savings account tax deductible for tax purpose?
No, contributions are NOT deductible.
Are withdrawals of contributions and earnings from the tax-free savings account taxable?
No, withdrawals of contributions and earnings from the TFSA are NOT taxable.
Would there be any restrictions on withdrawals like there is on Registered Retirement Savings Plans (RRSPs)?
No, you can withdraw any amount from your tax-free savings account for any reason.
Are there any tax benefits to making a contribution to a TFSA?
No, contributions to a tax-free savings account would NOT be deductible in computing income for tax purposes.
I have more questions about the TFSA – where do I go?
Watch for part II of this article next week.