Exchange-Traded Funds For Canadians For Dummies
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Canada Revenue Agency gave us all a little gift recently. As of January 2009, you can shelter up to $5,000 a year in investments in a Tax-Free Savings Account (TFSA). The beauty of the TFSA is that you can withdraw cash as needed — and you don’t pay a tax penalty. Here’s what you need to know about the Canadian TSFA in a nutshell:

  • You can start contributing to a TFSA at age 18 — all you need is a Social Insurance Number (SIN).

  • TFSA contribution room accumulates even if you don’t open an account. What that means is that, if you don’t open an account or make a contribution this year, by next year, you’ll have $10,000 in contribution room waiting and so forth.

  • Over-contributions are subject to a penalty tax of 1 percent per month.

  • Eligible investments in a TFSA run the gamut, from daily interest savings accounts to stocks, mutual funds, bonds, GICs, and, in some cases, shares in small business corporations.

  • Income earned in a TFSA, including interest, dividends, or capital gains, isn’t taxable.

  • Unlike any other tax-advantaged savings vehicle, you actually recover contribution room the year after you make a withdrawal.

  • If you die, the fair market value of your TFSA goes into your estate tax free, but any gain or income that builds up afterward is taxable.

  • You can’t currently name a direct beneficiary for a TFSA, but future amendments to provincial laws may allow that.

  • The TFSA is versatile so you can use it in a number of ways:

    • Supplementing tax-sheltered money in RRSPs and Registered Retirement Income Funds (RRIFs)

    • Saving for your child’s education or your own education

    • Accumulating a down payment on a home

    • Keeping an emergency fund

About This Article

This article is from the book:

About the book authors:

Russell Wild, MBA, is a NAPFA-certified financial advisor and principal of Global Portfolios, an investment advisory firm. He is the author of Bond Investing For Dummies and Index Investing For Dummies. Bryan Borzykowski is an award-winning financial journalist who writes mostly about investing, personal finance and small business.

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