Tax-Free Savings Account
Individuals who are 18 years of age or older may contribute annually to a TFSA and income earned on such amounts is sheltered from income tax. The maximum amount that can be invested in 2016 is $5,500.12 Unlike the RRSP, TFSA contributions are not deductible for tax purposes. However, capital and income withdrawals are not taxable.
Consider making a donation to your child or adult grand-child to invest in a TFSA so that the amounts invested can earn income tax-free.
The following table compares the main features of the most common registered plans, i.e. RRSP, RESP and TFSA.13
|Annual maximum||Lesser of:
|Deductibility||Deductible||Not deductible||Not deductible|
|Unused contributions room||Can be carried forward|
||Penalty of 1% per month||Penalty of 1% per month|
|Specific conditions||None||Beneficiary must pursue post-secondary education||None|
|Particularities based on savings objectives|
|Home purchase||Not intended for these purposes|
|Retirement||Accumulated savings must be withdrawn or transferred to another vehicle before December 31 of the year of the annuitant’s 71st birthday|
12 Amount indexed annually since 2010 and rounded to nearest $500 (corresponding to $5,559 in 2016, before rounding). Contribution ceiling was $10,000 in 2015, $5,500 in 2013 and 2014 and $5,000 for 2009 to 2012.
13 Parents who want to save for the financial security of a handicapped child can also invest in an RDSP (see Section IV).
14 Limit of $5,000 for first full-time session.
15 Under terms of Lifelong Learning Plan ($20,000) and HBP ($25,000).