Commencing 2013, the annual tax-free savings account (TFSA) contribution limit has increased to $5,500 from $5,000, making this savings vehicle even more attractive. You can use TFSAs to save for any purpose, including retirement, buying a home, starting a small business and taking a vacation.
The merits of the TFSA make it a high-priority investment option, in addition to contributing to your registered retirement savings plans (RRSPs) and paying down a mortgage on your principal residence. To make the most of your TFSA it is important to compare your savings options, and avoid the myriad pitfalls and anti-avoidance rules that can apply.
This Tax memo discusses the TFSA rules and how a TFSA can benefit you. It covers the following topics:
Canadian residents aged 18 years and older who have a social insurance number can contribute to a TFSA. The annual TFSA contribution limit was $5,000 from 2009 (when TFSAs were introduced) to 2012. This limit is indexed (rounded to the nearest $500) and increased to $5,500 in 2013.
TFSAs are available at banks, insurance companies, credit unions and trust companies. They are generally structured as deposits, annuity contracts or arrangements in trust. The investments that a TFSA can make are similar to those that can be made by an RRSP.