TFSA - Tax Free Savings Account
TFSA stands for Tax Free Savings Account and is a special type of bank account that offers tax benefits to Canadians. The TSFA was first introduced in the conservative federal budget 2008 by Canadian financial minister Jim Flaherty. Canadians can open TSFA accounts starting January 1st, 2009. The beauty of the Tax Free Savings Accounts is that any investment income earned into this account is not taxable. All the income that you earn within the account is never taxed, even when you withdraw it from the TSFA.

This TSFA is great for Canadians who want to save and to keep the greedy hands of the government out of their business. You can withdraw money from a TFSA anytime without paying taxes or penalties. Unfortunately contributions to TSFA are not deductible for income tax purpose, which means that all contributions going will already be taxed. This is one of the big differences between RRSP and TSFA account. The RRSP account contributions are deductible on your personal tax return, but when you withdraw money from RRSP you must pay taxes. The Tax Free Savings Account works the other way around – you contribute already taxed income, but future gains are tax free, even when withdrawing.

The TFSA is a great investment tool for Canadians who are able to save part of their income. The income going into TSFA is never taxed, and this allows for much faster growth (your capital compounds tax-free). As of the beginning of 2009 Canadians can contribute up to $5,000 per year, and this amount will be indexed for inflation using CPI, in increments of $500. You can carry over any unused amount below the $5,000 limit indefinitely.

All big Canadian banks including Royal Bank, TD Bank and BMO offer TFSA accounts to their customers.

In conclusion TSFA (Tax Free Saving Account) is a boon for responsible Canadian savers, who want to take their future in their hands.



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