02/19/2020
~ đ¶ Butterâs Tax Tip of the Month! ~
In 2009, the "Tax Free Savings Account" was introduced by the Canadian government to help Canadians save money. Like other registered accounts, the TFSA is a tax-sheltered way to grow your wealth. Unlike other registered accounts, the TFSA is an all-purpose account where it is not designated for a specific purpose, but you are able to spend the money whenever and however you like!
As the name implies, all forms of income â meaning any interest, dividends or capital gains earned from investments of the TFSA account are TAX FREE making this account a very powerful investment tool. The account can be used for a variety of investment vehicles including mutual funds, GICs, and various other stock investments.
How do you contribute to your TFSA account? There are two contribution limits to look out for: the annual and the lifetime contribution limit. The annual contribution limit is the maximum amount per calendar year that can be contributed â this is set by the Government of Canada and each yearâs amount can be found of their website. For 2020, the annual contribution limit is $6,000. You are entitled to all the TFSA contribution room that has accumulated since you turned 18. If you have never opened up a TFSA account, since you turned 18, you can contribute the whole accumulated amount in the current year without penalty. This is the Lifetime contribution limit. Each yearâs annual contribution limit is different so you would have to add up all the different amounts to find your lifetime contribution limit. If you were 18 or older in 2009, you are entitled to $63,500 in TFSA contributions without penalty. Be careful, the over-contribution penalty for your TFSA is 1% of the over-contribution per month until the over amount is withdrawn. Withdrawing from your TFSA is as easy as contributing to it. Money in, money out no forms or special arrangements. Also, any gains from the account are tax free and not considered income.
Hope you can use this information to make use of this powerful tax saving, money growing, powerful investment tool!