Starting in 2009, a tax-free savings account (TFSA) is a new way for residents of Canada to set money aside tax free throughout their lifetimes, Income Taxes Woodbridge.
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Contributions to a TFSA are not deductible for income tax purposes and the income earned in the account (for example, investment income and capital gains) is tax-free, even when it is withdrawn. Interest on money borrowed in order to contribute to a TFSA is also not tax-deductible.
Who is eligible for a TFSA?
Any individual (other than a trust) who is at least 18 years old,
who is a resident of Canada, and who has a valid social insurance number (SIN) can be a holder* of a TFSA.
How to establish a TFSA
To establish a TFSA, you must contact your financial institution, credit union or insurance company (issuer*). As the TFSA holder, you will need to provide the issuer with your SIN and date of birth so that the issuer can register your qualifying arrangement* as a TFSA. Failing to provide this information or providing incorrect information may cause the registration of the TFSA to be denied, resulting in possible tax consequences.
You can set up a self-directed TFSA if you prefer to build and manage your own investment portfolio by buying and selling a variety of different types of investments. If you are considering this type of arrangement, you may want to consult with your financial institution.
Note
An individual can have more than one TFSA at any given time, as long as the total amount contributed to all the accounts during the year does not exceed the individual’s available TFSA contribution room for that year.
Types of investments allowed in a TFSA
Generally, the types of investments that will be permitted in a TFSA are the same as those permitted in a registered retirement savings plan (RRSP). This would include mutual funds, securities listed on a designated stock exchange, Guaranteed Investment Certificates (GICs), bonds, and certain shares of small business corporations.
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