As the tax season approaches in Canada, you will hear a lot of acronyms being tossed out, like TFSA and RRSP. But what does it mean? Do you know where and how to invest your money wisely? Are you planning to invest at all? You know you should be saving up that stack of cash for a rainy day, but it can be overwhelming trying to figure out which direction to move in if you are not familiar with those financial lingos. Let’s take a closer look into TFSAs – Tax-free savings accounts – and clear some key factors.
The Canadian government proposed the Tax-Free Savings Account (TFSA) agenda in the 2008 Federal Budget. It came into relevance on January 1, 2009.
It is an investment tool that lets your capital grow and accumulate tax-free. It means you don’t pay taxes on the money you make inside your TFSA, such as interest, dividends, and capital gains.
Your TFSA limit regulates how much you can credit into your TFSA account each year. Fortunately, it is not “use it or lose it” scenario – this limit gathers over time if you don’t use it. The TFSA is designed to help individuals contribute to their savings without having to pay tax on the earned interest. TFSAs are not deductible for tax purposes, but they are accessible without penalty.
With the TFSA limit at $5,500 for 2018, the total capacity available in 2018 for someone who never contributed is eligible for the TFSA since its evolution in 2009 is $57,500.
For those clients who have withdrawn from TFSAs, their preserved profits and losses factored into their TFSA room. The formula is:
Unused TFSA contribution room to date + Total withdrawal made in this year + Next year’s TFSA dollar limit = TFSA contribution room at the beginning of next year.
You don’t have to set up a TFSA to earn contribution room.
If there is no TFSA, then you can open one and contribute a maximum of $57,500.
If you already have a TFSA, started saving, and never withdrawn money from your account, you can keep adding until you reach the current TFSA limit.
Calculating your TFSA would prove beneficial for you in multiple ways. Let us find out how.
With so many advantages galore, use a TFSA to shelter investments that accrue tax at the highest rate. You may want to get some professional advice on how you can make the best out of your TFSA as a useful part of your tax planning.
There is a range of TFSA options available in Edmonton to meet the needs of different investors, including savings accounts, term deposits, mutual funds, stocks, and bonds.
For an easy and time-saving process, talk to one of our best financial institutions in Edmonton to get more specific assistance. You can speak to our team of financial advisors here. Book your free consultation to chat with us today.