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Tax Free Savings Account - TFSA

The TFSA or RRSP Dilemma what is best?

There is no simple answer to this question both plans have their advantages and disadvantages. There are some basic general rules to consider which plan is best suited for your needs. If you are in a high tax rate during your working years and expect to be in a low tax when you retire, then RRSPs is best suited for your needs. 

For those with low incomes during their working years and at retirement TFSA are attractive. Tax savings from contributions to RRSPs for low income earners are lower and at retirement all withdrawals are taxed as income. One of the benefits of TFSA is that withdrawals are not taxed as income and do not reduce other benefits such as Guaranteed Income Supplement and other income tested benefits. The reason is withdrawals from TFSAs are not taxed as income versus RRSP withdrawals which are taxed as income. Those with high incomes at retirement will receive a reduced Guaranteed Income Supplement and other income tested benefits.

Do you have the right plan?

TFSAThere are different types of TFSAs. When you go to a bank, credit union or trust company to open a TFSA account, you will most likely be investing in a low interest savings plan or low paying guaranteed investment certificates. Your return from low interest investments will be negligible. If your objective is to use the money for emergencies than these low return investments will serve this purpose. If you are looking to maximize long term growth and tax-free profits you’ll want a plan that invests in equities. Historically equities have provided higher returns outperforming low interest investments. 

One mistake can lead to another, many people run into trouble with CRA because they initially opened the wrong type of plan that did not meet their investment objectives. After they have made their first mistake and realize they have the wrong plan they make a second mistake by making a withdrawal from their original TFSA plan and then re-contribute the funds to a new TFSA plan without any knowledge that they are over-contributing. Ovoid this pitfall and the CRA penalties that are levied on TFSA over-contributions by having a financial advisor set up the right plan from the start. If you have an existing plan and want to avoid the over-contribution pitfall we can transfer your existing plan to a new TFSA plan. Transfers are not considered withdrawals and will not result in over contributions in your new TFSA plan, you will avoid the CRA penalties.

Investment Options for TFSA

Stone-Hedge Financial Group Inc. offers a variety of investment options for TFSAs:

  • GICs

  • GIAs

  • Segregated Funds

You can make contributions to your TFSAs in one lump sum amount or monthly contributions.

Speak to a Stone-Hedge Financial Group Inc. financial advisor to set up a TFSA. A financial advisor will assist you in the selection of investments based on your personal risk tolerance and investment objectives.

Government of Canada


TFSA Calculator



What is a TFSA?

The Government of Canada created the TFSA program in 2009.  A Tax Free Savings Account is essentially a personal savings account with tax deferral benefits on all interest, dividends and capital gains. When the investor withdraws their money there is no tax payable on the accumulated interest, dividends and capital gains. To open a TFSA you must be 18 years old or older and have a valid social insurance number (SIN). 

Types of TFSA

There are three different types of TFSAs deposits, annuity contracts, or an arrangement in trust. The type of TFSA depends on who is the issuer, a Bank, Trust Company, Credit Union or Insurance Company. Stone-Hedge Financial Group Inc. offers all three different types of TFSAs from different financial institutions and insurance companies.

How TFSA's work

TFSA contributions are not tax deductible for income tax purposes. All interest, dividends and capital gains accumulates tax free in a TFSA, the funds can be withdrawn tax free at any time. Administration fees, management fees, commissions or transaction fees are not tax deductible. If these fees are paid for personally they will not result in a distribution (withdrawal) from a TFSA. Loans for contributions to TFSAs are also not tax deductible. The account holder is the only person who can set up a TFSA. TFSAs cannot be set up as a joint, spousal or corporate account. Insurance companies that offer TFSAs as an annuity contract provide the benefit to the account holder to designate a beneficiary on their accounts. 

How to open a TFSA

To open a TFSA contact a Stone-Hedge Financial Group Inc. financial advisor who will assist you with your investment selction and all the necessary paperwork. There are no restrictions on the number TFSAs an investor is eligible to open. The investor can open multiple TFSA accounts with different financial institutions. The amount the investor can contribute into a TFSA in any of their accounts cannot exceed the maximum allowable contribution room limit for the calendar year. 

Benefits of TFSA

Unlike RRSP's that require contribution room or earned income to make a contribution, TFSAs do not have this restriction. You do not need to have earned income to make contributions into a tax free savings account. The benefits of a TFSA is that any interest, dividends and capital gains accumulate tax free and can be withdrawn at any time tax free. Anyone can benefit from a TFSA and take advantage of this tax free benefits.

TFSA Contribution Limits

The contribution limits are $5,000 per year starting from 2009, if not used in the year they became available they accumulate and are carried forward. In order to carry forward TFSA contribution room limits one must be 18 years old or older, have a valid SIN and be a resident of Canada in the year they became available. Any amount contributed in excess of your contribution limit is subject to tax equal to 1% of the highest axcess in the month for each month the access remains in your account. Contributions can be in cash or in kind. Interest, dividends and capital gains accumulated on your investments in your TFSAs does not affect your contribution limit or contribution room.  

What if you do not know your TFSA contribution limit  

Information on your TFSA contribution limits can be obtained directly from Canada Revenue Agency (CRA) by calling Tax Information Phone Service (TIPS) at 1.800.267.6999

Canada Revenue Agency (CRA) will provide TFSA room statement upon request. You can also obtain a TFSA transaction summary that the issuer of your TFSA account provided to Canada Revenue Agency (CRA), this includes dates the contributions were made and any withdrawals. If the information on file with Canada Revenue Agency (CRA) is not complete or you have made additional contributions to your TFSA in the current year use Form RC343 Worksheet to calculate your TFSA contribution room for the current year. If you need a specific amount contact Canada Revenue Agency (CRA) directly at 1.800.267.6999. 

TFSA contribution room

According to CRA your TFSA contribution room is the maximum amount that you can contribute to your TFSA for the current year.

You will accumulate TFSA contribution room each year. The accumulated contibution room is accumulated even if you do not file an income tax and benefit return, or open a TFSA. Your TFSA contribution room accumulates every year from 2009 onward. To begin to accumulate TFSA contribution room in any calendar year you must be 18 years of age or older within the calendar year, have a valid SIN, and be a resident of Canada.

Increases in investments inside your TFSA do not affect your contribution room in the current year or future years.

The annual TFSA dollar limit from 2009 up to 2012 is $5,000 per year.

The annual TFSA dollar limit for 2013 is $5,500.

Age Restrictions to Open TFSA

In order to open a TFSA one has to be 18 years old or older. Unlike RRSPs where after age 71 no additional contributions are allowed you can open a TFSA at any age. 

If I withdraw money from my TFSA, can I re-contribute the amount I withdrew within the same calendar tax year? 

Withdrawals you make in the current calendar tax year will be added to your unused contribution room limit in the following year. You cannot contribute more than your TFSA contribution room limit in any given calendar tax year. Once you reach your contribution limit in any calendar tax year any withdrawals from your TFSA accounts during the year cannot be re-contributed within the same calendar tax year.

Are withdrawals subject to income tax?

Withdrawals are not subject to tax, they are tax free. The withdrawal which included your initial amount contributed and accumulated returns on investments will not increase your income for the year. If you are retired and make a withdrawal there will be no impact on your income-tested benefits from the Federal Government. The income-tested benefits are Old Age Security (OAS), Guaranteed Income Supplement (GIS) or Age Credit. 

What happens to the income and gains in my TFSA when I pass away?

When you pass away your TFSA will not be subject to tax. At the end of the calendar year following the year of death tax will only be payable on funds that have accumulated in the TFSA after your date of death.

Can I set up a spousal TFSA?

All TFSA accounts are set up as individually. You can open a TFSA account for your spouse or common law partner in their name. The benefit is TFSAs are not subject to attribution rules when you open an account in your spouses or common law partners name versus RRSP's that are subject to attribution rules.

Can you name a Beneficiary in a TFSA?

Similar to RRSPs and RRIFs, you can designate benficiaries on your TFSA accounts. A beneficiary designation would allow the asset to bypass the estate of the deceased and transfer them directly to the beneficiaries. By designating a beneficiary on your TFSA accounts the estate of the deceased would avoid the Ontario Estate Administration Tax (formerly called probate fees) and reduce the administrative costs of probating a will. In the absence of a beneficiary designation or a successor annuitant the TFSA assets of the deceased will be transferred by way of a will to the estate. 

Can you name a successor annuitant in a TFSA?

A successor annuitant is different than a beneficiary designation. TFSA legislation requires that the successor annuitant be a spouse of common law partner. When a successor annuitant designation is made the spouse or common law partner will simply replace the deceased TFSA account holder and receive all the assets in their own TFSA. An exempt contribution must be made by the end of the year following the date of death of the deceased TFSA account holder. The spouse or common law partner doesn't require having their own TFSA contribution room to have the assets transferred to them. Unlike a beneficiary designation where the income earned in the TFSA is taxed after the account holder's death, with a successor annuitant there is no tax after the TFSA account holder's death on the income earned.

The information provided on this web site is intended for general information only. It should not be construed as legal, accounting, tax or specific insurance and investment advice. Clients should consult a professional advisor concerning their situations and any specific insurance and investment matters. While reasonable steps have been taken to ensure that this information was accurate as of the date hereof, Stone-Hedge Financial Group Inc. and its affiliates make no representation or warranty as to the accuracy of this information and assume no responsibility for reliance upon it.

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