With the new year comes his new contribution to the tax-free savings account (TFSA), the saver’s best tool. Twelve things to know to start off on the right foot.
1. The maximum contribution increases from $6,000 to $6,500 in 2023.
2. For an investor who was 18 in 2009, the amount of cumulative contributions now reaches $88,000.
3. As its name suggests, the sums accumulated in a TFSA are not taxable upon withdrawal. Logically, TFSA contributions are non-deductible from taxable income. “Neither the investment income earned in a TFSA nor the withdrawals from such an account modify the rights to federal or Quebec socio-fiscal benefits and to federal and Quebec tax credits based on income”, underlines the Center québécois de formation en taxation in its year-end memorandum.
4. The tax-free nature of money placed in a TFSA suffers from one exception, however: withholding tax levied on foreign dividends.
5. All sums withdrawn can be redeposited from the 1er January the following year. Financial advisor André Lacasse gives the following example in his blog. “If you had contributed in 2022 an amount of $81,500 in January to withdraw it in December of the same year with a value of $82,500, he writes, your new rights, from 1er January 2023, will be $82,500 + an additional $6,500 for a total of $89,000. »
6. Beware of excess contributions, the tax authorities are watching the grain. Heavy penalties representing 1% per month will apply to overruns. “Keep your records up to date, suggests André Lacasse, because it is easy to lose track of the contributions made if you have them with several financial institutions. »
7. Upon your death, the amounts in your TFSA can be transferred to your spouse’s TFSA without affecting the spouse’s contribution room.
8. According to a January 2022 BMO survey, 63% of Canadians have a TFSA. Only one in two people know that investments other than cash can be invested there.
9. In 2019, a Quebecer who opened at least one TFSA held an average of $24,500 in it, according to the Canada Revenue Agency.
10. To find out the level of your contribution room, you can call 1 800 267-6999. You must have your most recent federal income tax return.
11. Products eligible for a TFSA are generally the same as for an RRSP: daily interest rate investments, mutual funds, exchange-traded funds, listed stocks, bonds, guaranteed investment certificates (GICs), bonds savings, annuity or insurance contracts, precious metals, among others.
12. The TFSA is versatile. It can be used to constitute a financial cushion for emergencies, to finance a special project such as a trip overseas, but also for retirement savings, in addition to an RRSP. Mr. Lacasse suggests, for example, living off his TFSA while postponing the Quebec Pension Plan (QPP) pension and the Old Age Security pension (PSV) for one year in order to improve them, which is not negligible, since these annuities are indexed.