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January 2014

TFSA

As of January 2014 the annual contribution limit for the Tax Free Savings Account is again $5,500. If you’ve never contributed, you may have $31,000 of contribution room as of January 2014.

Since TFSA were made available in 2009, Canadians (18+) have been able to earn tax-free investment income on contributions of $5,000 to $5,500 per year.

Any interest, dividends, and capital gains earned in a TFSA are not subject to tax. You can put more than just a savings account in a TFSA.

Much like RRSPs (Registered Retirement Savings Plans) the TFSA can be a high interest savings account, mutual funds, guaranteed investment certificates or term deposits, shares in companies, and other types of qualified investments.

Unused TFSA contribution room is carried forward and accumulates for future years, so if you haven’t contributed to your TFSA , you now have $31,000 available room as of January 2014.

Funds in your TFSA can be withdrawn tax-free at any time for any purpose (make sure you know if there are any fees that may be charged). You can re-contribute withdrawn amounts in the same year but only if you have unused TFSA contribution room. Otherwise you need to wait until the following January.

Income earned in the TFSA and withdrawals do not affect your Guaranteed Income Supplement, your GST Credit, Pharmacare Deductibles, the Age Credit, the Old Age Security Repayment and other income tested benefits and credits.

So should you buy a TFSA or a RRSP to save for retirement? That’s a common question. Generally TFSA are favoured if your taxable income is less than $44,000. Everyone’s taxable income is different, so a review of your current income and a guesstimate of your future retirement income should be completed for your own personal situation.

Tax Free Savings Accounts have become important estate planning vehicles too. When one spouse passes away, the TFSA can be transferred to the surviving spouse with no tax consequences and the income earned continues to be tax free.

There are two ways for TFSA to be transferred between spouses. The easiest way is for the TFSA to have your spouse listed as the Successor Annuitant. The surviving spouse becomes the new owner of the TFSA.

An alternative way is to have the spouse named as the beneficiary. This makes it a bit more complicated and not quite as smooth. The TFSA needs to be redeemed, and the spouse opens a new TFSA (or uses their own TFSA) and makes a contribution based on the amount withdrawn (actually the value as of the date of death). Plus a form needs to be completed and sent to Canada Revenue Agency within 30 days. And all this needs to be done by the end of the calendar year following the death of the spouse (if the spouse died in 2013, you have until the end of 2014 to get all this done).

Much easier to just make sure you have you spouse listed as the Successor Annuitant. Put this on your new year’s resolution list!

Finally, don’t rely on Canada Revenue Agency to find out how much TFSA contribution room you have. Keep track of it yourself to ensure you do not exceed the contribution room and face stiff penalties and interest.

Happy New Year; Bonne Année, Godt Nytaar, Gluckliches Neues Jahr

Anni Markmann is a Tax Professional, a Certified Financial Planner, and a Certified Professional Consultant on Aging living, working, and volunteering in our community. Contact her at 204.422.6631, anni@SteAnneTaxService.ca or 36 Dawson Road in Ste Anne.

 

 





 
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36 Dawson Road, Box 1072, Ste Anne, MB, R5H 1C1
Tel: 204 - 422 - 6631
2017