Back in 2009 when the Tax Free Savings Accounts were first introduced, the annual contribution limit was $5,000.  We were promised that this would increase gradually to keep up with inflation.  For 2013 the first increase takes effect, to the tune of $500.  So effective next year, you will be allowed to contribute $5,500 per year.

Want to learn more about the TFSA?  Start here.

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TFSA or RRSP?


August 17th, 2012

One common tax question I get is this: should I put money into a Tax Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)? ¬†There is of course no easy answer, and I won’t even pretend to answer that question in a blog post. ¬†It’s best answered on an individual basis.

There are some things you just can’t make a TFSA do that an RRSP does quite nicely, and there are some problems that an RRSP can create that a TFSA will never do to you. ¬†So the best place to start is to learn the differences between the two plans. ¬†If you want some basic advice, start off here:

http://www.tfsa.gc.ca/tfsarrsp-eng.html

I’m going to say one more thing: ¬†if you think you may someday qualify for what is called the Guaranteed Income Supplement (GIS) from Old Age Security, consider investing through the TFSA. ¬†Why? ¬†Because withdrawals from your TFSA account won’t affect your Supplement. ¬†You have no idea how many seniors say to me: ¬†“I would never have invested any money in an RRSP if I’d known how it would affect my Supplement

Now, the government of Canada really,¬†really doesn’t want you to plan your retirement around the Supplement – after all, the Supplement is there to protect the lower income seniors. ¬†But if you think the Supplement is in your future, consider avoiding the RRSP and go with the TFSA.

Qualifying for even a small Supplement brings with it a whole raft of other goodies (lower cost Senior’s PharmaCare, municipal property tax rebates, provincial heating rebates in Nova Scotia, etc.) ¬†So while the government of Canada doesn’t want you to build your retirement fund around the Supplement, you might be tempted to do so anyway.

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We’re half done 2009


July 2nd, 2009

2009 is now half over.  Summer is here.  Nobody wants to think about taxes.  But really, now is a great time to get a headstart on that year end tax planning.

Everybody by now has likely heard about the new Tax Free Savings Account (TFSA). ¬†In case you haven’t heard about it yet, or you weren’t listening, here goes: ¬†Effective January 1, 2009 any Canadian resident at least 18 years old, who has a Social Insurance Number, can put money into their TFSA.

Money that you put into a TFSA can earn income tax-free. ¬†You can put up to $5,000 per year into your TFSA. ¬†So, that $5,000 can earn interest, capital gains, dividends etc without you paying any tax on it. ¬†And then, when you withdraw it, it’s still tax-free. ¬†Not a bad deal.

The downside is that, unlike a Registered Retirement Savings Plan (RRSP) contribution, you do not get a tax deduction when you put money into the TFSA.

If you feel like reading more about it, you can go to: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html

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