Have a question about the Tax-Free Savings Account (TFSA)?
We've provided answers to the most common TFSA questions below. Don't see your question? Please call us at 1-800-463-3863.
General Questions
Contribution Questions
Withdrawal Questions
Additional Questions
General Questions
What is a TFSA?
A Tax-Free Savings Account (TFSA) is a new registered account introduced by the Federal Government in the 2008 Budget. This new account allows all of your investment income and capital gains to in the account will grow tax-free .
What can a TFSA be used for?
A TFSA can be used to save for a variety of short-term and long-term goals. Short-term goals, like saving for a car and long-term goals, like saving for a home or retirement.
Who is eligible for a TFSA?
All Canadian residents age 18 and older with a Social Insurance Number can open a TFSA.
The age of majority is 19 for residents of Newfoundland and Labrador, New Brunswick, Nova Scotia, British Columbia, Northwest Territories, Yukon and Nunavut, which may delay the opening of a TFSA. However, the accumulation of contribution room will start at age 18.
How is a TFSA different from an RSP?
- Withdrawals from a TFSA are tax-free and are added to unused contribution room starting the following year.
- Contributions to a TFSA are not tax deductible.
- With a TFSA you don't need earned income to accumulate contribution room. Everyone has the same contribution room.
- There is no requirement to convert the TFSA to an income payment option (i.e. RIF) at any age.
- You can give money to your spouse to open a TFSA without being subject to Canada Revenue Agency's (CRA) attribution rule.
For more details on the differences, click on Comparing TFSAs and RSPs.
When can I start saving and investing in a TFSA?
You can start in January 2009.
What investment options are available for TFSAs?
The investment options are similar to the investment options available for your RSPs. For example: RBC Savings Deposits, RBC GICs and RBC Funds. You can also invest in stocks and bonds through RBC Direct Investing™ and RBC Dominion Securities. This makes the Tax-Free Savings Account appropriate for all types of investors.
In addition, regular, automatic contributions will be easy to make on a regular basis with an RBC TFSA-Matic™. Try the TFSA calculator today to see the benefits of regular, ongoing contributions.
Do I need to have a particular income level to take advantage of a TFSA?
There is no minimum or maximum income level. Every eligible person will accumulate contribution room each year starting in 2009.
Can I open a joint TFSA account?
No. Similar to registered retirement accounts, such as RSPs, government rules only permit individual accounts.
Is the TFSA available to be opened in the name of a business, incorporated or not?
No, as a registered account, the TFSA can only be opened by an individual for his or her personal use.
Will the TFSA have any impact on my government guaranteed income supplements?
Investment income and withdrawals from a TFSA will have no impact on Federal income-tested benefits and tax credits you may receive, including the Canada Child Tax Benefit, the Working Income Tax Benefit, the Guaranteed Income Supplement and the Goods and Services Tax Credit. At this time, the impact on provincial programs is not clear.
Will a TFSA replace my other savings accounts?
A TFSA will complement your current savings accounts, to satisfy both your short- and long-term objectives. How you choose to use your TFSA is an individual choice which will depend on your specific goals. Unlike traditional savings accounts, TFSA withdrawals made during the year can not be re-contributed until at least the following year. Also, there is no access to TFSAs from RBC Banking machines and withdrawals cannot be made through Online Banking. An RBC advisor can help you determine which accounts and investments will best serve your needs.
Contribution Questions
How much am I allowed to contribute per year?
You can contribute up to $5,000 each year. This contribution limit will increase along with inflation in future years, in $500 increments (subject to government guidelines).
If I am earning no income, can I still make contributions to my TFSA?
Yes. If you are eligible, you will accumulate contribution room each year-even if you have earned no income.
If I am unable to contribute in a given year, will I be able to use my unused contribution room in a future year?
Yes. Your unused contribution room can be carried forward indefinitely. There is no limit on how much contribution room you can accumulate.
For example, if you contribute $3,000 to your TFSA in 2009, your contribution room for 2010 will be $7,000 ($2,000 carried forward from 2009 plus $5,000 for 2010).
Also, TFSA contributions are in addition to any RSP contribution room you may have.
What happens if I over contribute for the year?
Similar to an RSP, a penalty will be assessed by Canada Revenue Agency (CRA) of 1% per month on your excess contribution.
How will I know what my TFSA contribution room is for a given year?
Canada Revenue Agency (CRA) will track your contribution room. CRA intends to report this amount to individuals on their Notice of Assessment and through the “My Account” function on the CRA web site.
Is there a lifetime contribution limit?
There will be no lifetime limit on the amount of your contributions. If you are eligible, you will accumulate $5,000 every year, which will increase with inflation, in $500 increments.
Can I contribute to my spouse or common-law spouse's TFSA?
No. However, money you give to your spouse to contribute to his or her TFSA will not be subject to CRA's income attribution rules. The TFSA allows both you and your spouse to earn tax-free investment income, regardless of which spouse contributed the funds.
If I give funds to my spouse to contribute to his or her TFSA, who will get the income, me or my spouse?
Your spouse owns the TFSA and will earn any investment income and capital gains in the account.
Withdrawal Questions
Can I withdraw the money I've contributed to my TFSA for any purpose or for specific circumstances?
You can withdraw amounts for any purpose. There are no restrictions.
How often can I withdraw from my TFSA?
As often as you wish, but timing may depend on what you invested in—for example non-redeemable GICs may not have matured. Some financial institutions may charge a withdrawal fee, but there will be no withdrawal fees or annual administration fees with a TFSA from RBC Royal Bank.
Are withdrawals subject to income tax?
No. Withdrawals can be made tax-free and will not increase your income for the year. Since withdrawals will not be taxed and will not be considered taxable income, there will be no impact to your income-tested benefits and credits from the Federal Government, such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS) or credits such as the Age Credit.
If I withdraw money from my TFSA, can I re-contribute this withdrawn amount later on in the tax year?
Withdrawals you make in the current calendar year will be added to your unused contribution room. Amounts can't be re-contributed until the following calendar year or later.
Additional Questions
If there is a breakdown of a marriage or common-law partnership, what will happen to my TFSA?
TFSA assets may be transferred between spouses or common-law partners upon marriage or relationship breakdown. However, it's important to understand the implications of transferring TFSA funds; the spouse who gives some or all of their TFSA funds (due to the divorce/separation agreement) will lose his or her TFSA accumulation room that they've acquired since the launch of TFSA because the transferred amount will not be added back to contribution room.
On the other hand, if a plan holder withdraws assets from the TFSA before giving the funds (due to the divorce/separation agreement), then the amount of the withdrawal will be added back to the contribution room of the transferring spouse for the following year, allowing the plan holder to continue to benefit from tax-free investing. The receiving spouse will be able to contribute to their TFSA, but only to the extent that they have their own contribution room.
How are capital losses treated in a TFSA?
As investment income and capital gains within the TFSA are not taxed, any capital losses generated in the account can't be used against other taxable gains.
Can I transfer investments “in-kind” into an RBC TFSA?
Yes, but only for RBC Funds from a non-registered investment account (an RBC GIC cannot be transferred). However, transferring RBC Funds from a non-registered investment account into a TFSA may have tax consequences. For example, if there is an accrued capital gain on the asset being transferred, it is recognized at the time of transfer. If there is an accrued loss, the capital loss is not recognized.
Information about the Tax-Free Savings Account is based on what is currently available from the Canadian government and can be subject to change.
There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
Financial 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 services firm in the province of Quebec.
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