If you are a Canadian resident willing to make some tax free investments then Tax Free Savings Account(TFSA) is just for you. It’s a Canadian government initiative started in 2009. The main idea is to give some tax benefits to investors having reached a certain age to encourage investments in the Canadian economy. This special initiative helps an investor to save on taxes on any profit made such as capital gains, dividends, etc. The more attractive offer is that you can withdraw your investments anytime without additional fees or taxes. Some similar type of accounts like the Registered Retirement Savings Plan (RRSP) will make you pay income taxes but TFSA is totally free from any kinds of income taxes. That means you can keep your money away from any observations and earn more interest.
It’s ok if you don’t want to invest cash money in your TFSA account. You have so many other options. You can choose from your publicly traded shares, mutual funds, certain stocks, bonds, guaranteed investment certificates, shares on private corporations, installment receipts, etc. to invest instead of cash.
To become eligible for a Tax-Free Savings Account, you have to be a Canadian resident. Secondly, you must be 18 years or older to invest in a TFSA. There is also a limit on the money you can invest in total for one account. You can invest a maximum of $5500 in a whole year. TFSA will give you one other option that is unique. You will have the carry-over facility associated with every TFSA account that you have, which means that you can use the unused space of the $5500 limit in successive years without additional upward limits. One important point to make is that you cannot increase your quota by withdrawing some money from your TFSA account. The money you withdraw will be considered to be a user space no longer eligible for investment for the current year. You can use this space in the next year though.
Several banks and financial organizations in Canada offer TFSA accounts. They provide competitive interest rates and sometimes an option for unlimited profits upon the investment on certain fields. TFSA is a registered plan. You can make lifetime profits from a TFSA. You need to have a Social Insurance Number (SIN) with you while you apply for a TFSA. The withdrawal limits and other issues are monitored directly by the government to ensure security. You can declare to transfer your TFSA assets to any of your common-law partner or your spouse upon death.
You might wonder what if you would try to get some other government credits while still using a TFSA. The good news is that you don’t need to worry about a thing. You are eligible for goods and services tax benefits or old age security benefits even though you have a TFSA because TFSA has no effects on federal credits. This makes TFSA a wonderful option for small investments.