February 26, 2008
Tax-Free Savings Account
Canadians need to save for many different purposes over their lifetimes. Reducing taxes on savings can help.
That’s why the Government has introduced a new Tax-Free Savings Account (TFSA). It’s the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).
The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used to purchase a new car, renovate a house, start a small business or take a family vacation.
Canadians from all income levels and all walks of life can beneﬁt.
How Is a TFSA Different From a Registered Retirement Savings Plan?
An RRSP is primarily intended for retirement. The TFSA is like an RRSP for everything else in your life.
Both plans offer tax advantages, but they have key differences.
Contributions to an RRSP are deductible and reduce your income for tax purposes. In contrast, your TFSA savings will not be deductible.
Withdrawals from an RRSP are added to your income and taxed at current rates. Your TFSA withdrawals and growth within your account will not—they will be tax-free.
Beneﬁts of Saving in a TFSA
Because capital gains and other investment income earned in a TFSA will not be taxed, a person contributing $200 a month to a TFSA for 20 years will enjoy additional savings of $11,045 compared to saving in an unregistered account.
Responsible Leadership Budget 2008
Early Savings to Meet Many Needs
Canadians will also beneﬁt by using the TFSA to start saving early for future needs and goals.
A Flexible Account for a Lifetime of Savings
Not everyone is able to save each and every year.
Those who cannot contribute $5,000 in a given year will be able to carry forward their unused contribution room to future years.
In addition, Canadians may want to use their savings— to buy a new car or a cottage, or start a small business— and the full amount of withdrawals can be put back into the TFSA in the future. Couples often save and plan together, so Canadians can contribute to their spouse’s or common-law partner’s TFSA, depending on the spouse’s or partner’s available room.