Tax-Free Savings Account (TFSA)

Government has introduced a new Tax-Free Savings Account (TFSA). It’s the single most important 
personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP)

How the TFSA Works

* Starting in 2009, Canadians aged 18 and older can save up to $5,000 every year in a TFSA. 
* Contributions to a TFSA will not be deductible for income tax purposes but investment income, 
  including capital gains, earned in a TFSA will not be taxed, even when withdrawn. 
* Unused TFSA contribution room can be carried forward to future years.
* You can withdraw funds from the TFSA at any time for any purpose. 
* The amount withdrawn can be put back in the TFSA at a later date without reducing your contribution 
  room.                            
* Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested 
  benefits and credits. 
* Contributions to a spouse’s TFSA will be allowed and TFSA assets can be transferred to a spouse 
  upon death.

How Is a TFSA Different From a Registered Retirement Savings Plan (RRSP)

An RRSP is primarily intended for retirement. The TFSA is like an RRSP for everything else in your life.Both plans offer tax advantages, but they have key differences.

* Contributions to an RRSP are deductible and reduce your income for tax purposes. In contrast,
   your TFSA savings will not be deductible.

* Withdrawals from an RRSP are added to your income and taxed at current rates. Your TFSA    withdrawals and growth within your account will not—they will be tax-free.