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TFSA Frequently Asked Questions
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Questions
- What is a Tax Free Savings Account?
- What are the benefits of a TFSA?
- How much money can I contribute to my TFSA in 2009?
- How will a TFSA work for me?
- What types of investments can I hold in my TFSA?
- How is a TFSA different from an RRSP?
- Can I withdraw money from my TFSA?
- Would contributions and withdrawals have any impact on my eligibility for federal income-tested benefits, such as the Canada Child Tax Benefit and the Guaranteed Income Supplement?
- What happens if I contribute more than my contribution room?
- What happens to my TFSA if I die?
- How will I know what my TFSA contribution room is for a given tax year?
- Can I contribute to my spouse's TFSA?
- Would the income earned in that account be attributed back to me?
- Can TFSA assets be used as security for a loan?
- Can a non-resident of Canada open a TFSA?
- If I become a non-resident while I have a TFSA can I still make contributions?
- I’ve already opened a TFSA. How do I make a contribution online?
- What account types are permitted within a TFSA?
- Can I use borrowed funds to contribute to a TFSA?
- What happens to the TFSA assets in the event of marriage breakdown?
- Do I have Canada Deposit Insurance Corporation (CDIC) insurance on the investments held within the TFSA?
Answers
- What is a Tax Free Savings Account?
In the 2008 budget, the government of Canada introduced a brand new personal savings vehicle: the Tax-Free Savings Account (TFSA), to help you save for different purposes throughout your lifetime. This new account is the most important personal savings vehicle for Canadians since the introduction of the RRSP in 1957.
As of January 2, 2009, you are able to start contributing to a TFSA, which can hold any combination of eligible investment vehicles, such as cash, stocks, bonds, GICs and mutual funds, the growth of which will be tax-sheltered.
Your Scotiabank advisor can help you plan how the TFSA can help you meet your savings and investment goals.
- What are the benefits
of a TFSA?
A TFSA allows you to set money aside in eligible investments and watch those savings grow tax-free throughout your lifetime. Interest, dividends, and capital gains earned in a TFSA are tax-free for life. Your TFSA savings can be withdrawn from you account at any time, for any reason, and all withdrawals are tax-free.
- How much money can I contribute to my TFSA in 2009?
The 2009 contribution limit for each individual (18 years of age and older) is set at $5,000. Unused contribution room for 2009 is carried forward and added to your 2010 contribution limit. Any withdrawals made in 2009 will create additional contribution room for 2010.
- How will a TFSA work for me?
There's something for everyone with a TFSA and your Scotia advisor can help you decide how the TFSA can help you meet your goals. Here are some of ways that you can take advantage of this new savings vehicle:
- Are you looking to save for a "rainy day"?
- A TFSA is an ideal all-purpose savings account that offers complete flexibility to save for a multitude of uses in one account. Your savings build up over time – tax-free - helping you reach your goals sooner, and you can withdraw your money when you need it.
- Do you have non-registered investments?
- A TFSA is an excellent choice if you have non-registered investments. The TFSA allows you to turn taxable income into tax-free income for life, by creating a more tax-efficient investment portfolio and enabling you to maximize your investment growth. You can contribute to a TFSA for a spouse or other family member. Spousal attribution rules don't apply as they would with an RRSP.
- Are you retired or earning a pension income?
- A TFSA is also an ideal investment vehicle for depositing surplus RIF or pension income. It provides the ability to permanently tax-shelter non-registered GIC interest income. Deposits to a TFSA will not result in a claw back of government benefits like Old Age Security or the Guaranteed Income Supplement and there is there is no age threshold at which a TFSA must convert into a taxable account.
- What types of investments can I hold in my TFSA?
Scotiabank TFSA-eligible investments include mutual funds, Guaranteed Investment Certificates (GICs) and savings, all in one account. Investment options with ScotiaMcLeod and ScotiaMcLeod Direct Investing may differ. Please consult your financial advisor for specific details on investment availability.
- How is a TFSA different from an RRSP?
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TFSA |
RRSP |
| Limits |
Maximum 2009 annual contribution limit is $5,000 regardless of an individual’s earned income |
Contribution limit is based on an individual’s earned income from the previous year, up to a maximum amount |
| Tax Deductibility |
Contributions are not tax-deductible and therefore do not reduce taxable income
Income/returns earned on investments are tax-free |
Contributions are tax-deductible and therefore reduce taxable income
Income/returns earned on investments are tax-sheltered until withdrawn |
| Withdrawals |
Withdrawals are not added to taxable income - they are tax-free |
Withdrawals are added to taxable income and taxed at the applicable marginal tax rate. |
- Can I withdraw money from my TFSA?
You can withdraw money from your TFSA at any time; however, specific product restrictions may apply (e.g. GIC maturity dates). The amount you withdraw can be put back in your TFSA starting the following year without impacting your contribution room.
- Would contributions and withdrawals have any impact on my eligibility for federal income-tested benefits, such as the Canada Child Tax Benefit and the Guaranteed Income Supplement?
Neither income earned in your TFSA, nor withdrawals, will affect your eligibility these types of benefits.
- What happens if I contribute more than my contribution room?
Similar to an RRSP, you will be charged an over-contribution penalty of 1% per month by the Canada Revenue Agency (CRA) on your excess contribution amount.
- What happens to my TFSA if I die?
You may allow your spouse or common-law partner to assume your plan on your death if you designate them as a "successor holder". Alternatively, you may designate a beneficiary(ies) to receive the funds in your plan upon your death. The beneficiary/successor holder option is available in all provinces and territories, except for Quebec. Note: Residents of Quebec may make designations through a will. Always check with your legal advisor before making tax and estate decisions.
- How will I know what my TFSA contribution room is for a given tax year?
Canada Revenue Agency (CRA) will provide details on your contribution room. CRA intends to report this amount to individuals on their Notice of Assessment and through the “My Account” function on the CRA web site.
- Can I contribute to my spouse's TFSA?
Yes. You will be able to contribute to a spouse's TFSA without affecting your own contribution room. Income attribution rules, which currently govern RRSPs, do not apply.
- Would the income earned in that account be attributed back to me?
No. Your spouse owns the TFSA and will earn any investment income and capital gains in the account.
- Can TFSA assets be used as security for a loan?
Yes. TFSA assets can be used as security for a loan.
- Can a non-resident of Canada open a TFSA?
No. TFSAs can only be opened by permanent Canadian residents.
- If I become a non-resident while I have a TFSA can I still make contributions?
If you become a non-resident, you are able to maintain your TFSA and will not be taxed on any earnings or withdrawals in the account. However, you will not be allowed to contribute additional funds and no contribution room will accrue for the years in which you are a non-resident.
- I’ve already opened a TFSA. How do I make a contribution online?
For a TFSA with Scotia Investments
- Sign into Scotia OnLine
- Select the Investing tab
- Then select the Scotia Investments tab
- Select “Contribute to Existing Investment” from the left navigation.
- Select your TFSA and choose the contribution type that you would like to make.
For a TFSA with Scotia McLeod Direct Investing
- Sign into Scotia OnLine
- Select the Investing tab
- Select Accounts and Transfers
- Then select “TFSA Contributions” from the left navigation.
- What Account types are permitted with for a TFSA?
Only individual (Sole) accounts can be set up. Joint, non-personal and ‘In Trust For’ accounts are not available.
- Can I use borrowed funds to contribute to the TFSA?
Borrowing to fund a TFSA is permitted; however, interest expenses related to such a loan are not tax-deductible.
- What happens to the TFSA assets in the event of a marriage breakdown?
A new form, 'Transfer From a Tax-Free Savings Account (TFSA) to another TFSA on Breakdown of Marriage or Common-Law Partnership', is required to be completed and submitted to the Financial Institution prior to the TFSA assets being transferred.
- Do I have Canada Deposit Insurance Corporation (CDIC) insurance on the investments held within the TFSA?
All eligible deposits (e.g. GICs, cash) held within a TFSA are insured by CDIC, and will be afforded coverage to a maximum of $100,000, separate from other deposits held by the same depositor at the same member institution.
If the Dealer of your Scotia TFSA is The Bank of Nova Scotia, Canadian currency funds in the cash section of your account are insured by the Canada Deposit Insurance Corporation.
If the Dealer of your Scotia TFSA is Scotia Securities Inc., Canadian currency funds in the cash section of your account are held in trust by Scotia Securities Inc. These funds are not eligible for deposit insurance offered through the Canada Deposit Insurance Corporation.
For more information, please contact the CDIC, or pick up a CDIC brochure at your nearest Scotiabank branch.
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