As the name suggests, it is an account which does not apply any kind of tax to your contributions, and also it can also be withdrawn tax-free. We at Allkindinsurance.com respect your dreams and aspirations and to help you achieve them, we bring to you Tax-Free Savings Account.
Who can open a Tax Free Savings Account?
Any Canadian citizen who has attained 18 years of age and above can open a Tax Free Savings Account for any purpose.
What is the contribution limit to Tax-Free Savings Account?
TFSA was introduced in Canada in 2009, and the maximum limit of contribution as in 2019 is $6000 annually indexed to the Consumer Price Index (CPI) with $500 increment to account for inflation. The total cumulative contribution for a TFSA is $63500
Types of contribution in TFSA
Any investment income, dividends, capital gains, etc. can be contributed in a TFSA account, with complete tax-free interest.
What is Over-contributions?
Any withdrawal from a TFSA will further increase the available contribution room effective from the 1st January of the upcoming year. An over-contribution will occur if an individual mistakenly believes that a withdrawal instantly will create a room for contribution and deposits in the same calendar year. At any time in a year, if the contribution made exceeds the permissible limit, then it will be considered as an act of over-contribution and the account will be subject to a tax equal to 1% of the highest additional TFSA amount in the month, for each month that the additional amount remains in their account.
The prime benefit of TFSA is “exemption of tax”. To explain it further, let’s take two friends Philip and Francis. At the start of the financial year, Philip puts his money in an investment account which gives him roughly 7.5% interest per annum. Francis also does the same however he puts his money in a TFSA. If both of these friends deposit a lump sum amount of $7350, they will each have a corpus amount of $7901 at the end of the financial year. Now, by investing in TFSA which is tax-free, Francis will be able to withdraw his complete accumulated amount of $7901 whereas, Philip will be taxed upon the additional amount of $551 which he earned in capital gain.
Tax-Free Savings Account is a beautiful financial product by which you can make robust savings, earn interest on your investments and fulfill your respective goals. Further, at Allkind Insurance shall take utmost care in facilitating you through this system and help you realize your dreams.