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Tax-Free Savings Account (TFSA) FAQs

Updated on Aug 27, 2015 travel-insurance

Can I open a TFSA for my children?

No, you cannot open a TFSA for your children. However, when a citizen turns 18, they may open one for themselves and a parent can give them money to put in it.

 

Can my spouse and I share a joint account?

No, you cannot share an account with your spouse. Accounts are kept in one name so the Canada Revenue Agency (CRA) can keep track of contributions.

 

What do people contribute on average?

In 2014, TFSA holders contributed about $4,000 annually. The total holding per account was $17, 490.

 

Who are more likely to use TFSAs?

According to the CRA, citizen 75 and over hold the largest percentage of TFSAs closely followed by those between 55 and 59 years.

 

What’s the limit you can put in?

The limit you can put in is $10,000.

 

How often do they raise the limit?

Rises are based on inflation. The quicker the inflation, the faster they will raise the limit.

 

Does room roll over if you do not put in the full amount one year?

Yes. If you do not put in the full amount one year, you can put it in the next. The CRA states that 88% of available TFSA room is unused.

 

What can you put in a TFSA?

You are able to put in cash, GICs, mutual funds, ETFs, and company shares.

 

What is the difference between a TFSA and a RRSP?

You pay tax on money before you put it in a TFSA. You pay take on money after you take it out of a RRSP. That is the main difference.

 

Are contributions tax deductible?

No, contributions are not tax deductible and neither is interest on money borrowed to make a contribution.

 

Who is eligible for a TFSA?

Residents of Canada over the age of 18 are eligible. It is also important to note that TFSAs are forever. They do not need to turn into a RRIF when the holder turns 71.

 

Is there a limit on the amount of accounts I can hold?

There is no limit on how many accounts you can hold. The CRA says 7.8 million Canadians have one account, 1.4 million have two and 730 people who have 10 or more accounts.

 

How do I leave my TFSA to my spouse?

Generally, TFSAs can be transferred to a spouse or children tax-free after death. The TFSA holder must name the spouse a “successor holder”. Talk to your advisor or broker about how to do this.

 

What happens when I withdraw money?

The full amount that you took out can be returned the next calendar year in addition to your maximum contribution for that year.

 

Why can’t I put my money back the same year that I withdrew it?

Returning money you withdrew in the same year leads to an over-contribution penalty.

 

How much are penalties?

The CRA charges 1 per cent per month on excess contributions. Suppose you put in $500 too much on Jan. 1 and don’t realize it until June 30. On June 30 you take out the $500. The penalty would be $30 ($5 per month x 6 months.)

 

Does a TFSA affect other government programs?

Neither income earned within a TFSA, nor withdrawals affect such things as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.

 

What if I am getting divorced?

When there is a breakdown in a marriage or common-law partnership, an amount can be transferred from one individual’s TFSA to the other’s without affecting either individual’s contribution room. The transfer must be made directly between the TFSAs.

 

Who keeps track of TFSAs?

The CRA collects information from financial institutions who make contributions and withdrawals for you. They use this information to keep track of TFSA statistics.

 

Where can I learn more about TFSAs?

You can go to the CRA website, google “TFSA rules” or contact a financial institution. A financial institution will have all the information you need to start and grow your TFSA.

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