Posted at 9:00 a.m.
The maximum to respect concerns the contributions, not the return
1er January 2022, $6,000 has been added to the cumulative TFSA contribution room. Someone who was of age when the TFSA was created in 2009 therefore now has a maximum cumulative contribution room to respect of $81,500. However, there is no maximum return that can be achieved in your TFSA. “We regularly see people who now have sums like $110,000 or $120,000 when you add up the contributions and the return,” notes André Lacasse, financial planner at Services financiers Lacasse.
You have to have a return to take advantage of the TFSA
“As it’s the return that’s tax-free, you have to have it to take full advantage of the TFSA,” says André Lacasse, who is also a mutual fund representative at PEAK Investment Services. Thus, he is always surprised to see that many people use the TFSA as a savings account to finance small short-term projects, such as the next vacation or Christmas presents. BMO also recently revealed that no less than 40% of Quebecers’ investments in the TFSA are liquidities, in particular guaranteed investment certificates, which provide a low return.
PHOTO MARTIN CHAMBERLAND, ARCHIVES LA PRESSE
André Lacasse, financial planner at Services financiers Lacasse
But the TFSA is not made for investing small amounts in investments that yield around 0.5 or 1%. To take advantage of the power of the TFSA, you have to seek returns on which you will not be taxed.
André Lacasse, financial planner at Services financiers Lacasse
“The Canadian and American benchmark stock indices had returns above 20% in 2021,” he adds. For people who have been able to obtain attractive returns with a diversified portfolio, while of course always respecting their investor profile, the TFSA becomes really advantageous. »
The non-taxable return exception
You should know that if the return is not taxed in the TFSA, there is an exception. “If you buy foreign shares via your TFSA, a withholding tax will be levied if they give dividends,” says André Lacasse.
Find your contribution rights
If you have maximized your TFSA and you withdraw amounts for one year, you will have the possibility of redepositing them on the 1er January of the following year. “If you have maximized your TFSA with $81,500 in contributions, but with the return, it now reaches, for example, $100,000 and you empty it, it is not $81,500 that you can redeposit in your TFSA 1er next January, but $100,000, specifies André Lacasse. The amount withdrawn becomes the contribution room that you recover. »
Of course, if you’ve withdrawn some money, but you still have contribution room left, you don’t have to wait to redeposit the money.
Plan your legacy
The TFSA can also be interesting to bequeath as an inheritance. This is the case first for his spouse. “When someone writes in their will that they are transferring their TFSA to their spouse, this amount will be added to their contribution room,” explains Mr. Lacasse. Thus, if each had $100,000 in TFSAs, the surviving spouse would end up with $200,000. »
Also, if the TFSA is given as an inheritance to the children, it will not be taxed. “That’s true, except for the return earned between death and the day the estate is settled,” explains the financial planner. This is because upon death, the account is no longer considered a TFSA for children. But usually it is a small amount to pay. »