The TFSA is a great tax savings vehicle for Canadian investors over the age of 18. In 2013 the annual contribution limit was raised to $5,500. This plan has been in existence since 2009 and any unused contribution room from prior years is carried forward. Although there is no tax deduction for a TFSA contribution, withdrawals from the account are tax free and growth and income earned on investments within a TFSA are tax sheltered for life! An added bonus is that any money withdrawn from a TFSA will open up an equivalent amount of additional contribution room in the following year.
The TFSA can be used for any purpose and is appropriate for both short and long term savings goals, based on the investments chosen for the plan. The TFSA is a good compliment to a traditional RRSP because it can provide a source of non-taxable income. RIF and Pension income is fully taxable and can trigger clawbacks of senior benefits such as OAS and GIS, whereas income withdrawn from a TFSA is not taxable and therefore will not have an adverse effect on any income tested government benefits, including the Child Tax Benefit. Not sure if you should contribute to a TFSA, an RRSP, or both? We will help you decide which option is best for your individual situation.