Beginning in 2009, Canadian residents aged 18 and over are able to contribute up to $5,000 annually to a Tax Free Savings Account. While unlike an RRSP, contributions will not be tax deductible, income earned in the plan is not taxable and all withdrawals are tax free.
Much like an RRSP unused TFSA contribution room carries forward indefinitely allowing for larger than $5,000 annual contributions in subsequent years. Unlike an RRSP, amounts withdrawn from a TFSA are not lost contributions, they are instead added to a tax payer’s contribution room in subsequent years.
Excess contributions are subject to a similar penatly tax that over contributers to RRSPs face.
Eligible investments
The same investments that are eligible for inclusion in an RRSP are eligible for inclusion in a TFSA, including: stocks, bonds, GICs, and mutual funds.
Other features
Unlike assets held in an RRSP, assets held in TFSA may be used as collateral for loans.
TFSA’s can still be held after ceasing Canadian residency, retaining their tax free status, however, further contributions cannot be made and contribution space is not earned while a non-resident.
TFSA may be rolled over to a spouse or common-law partner on a tax free basis upon death or marital breakdown.
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