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Tax-Free Savings Account (TFSA)

A bright way to maximize your savings.

TFSAs are a smart savings option for:

  • People who have savings and want to shelter their investment earnings from taxation
  • People who have maxed out their RRSPs, and want to explore additional tax-efficient options
  • People who want easy access to funds before retirement, and want to keep their investment income tax-free
  • People who want to make sure that their savings don’t impact their eligibility for government benefits and tax credits

Here’s how a Tax-free Savings Account can help you maximize your savings and minimize your taxes

A large purchase or emergency fund

Many Canadians keep emergency funds in savings accounts, where any interest earned attracts the marginal tax rate. TFSAs are better for storing emergency money, or building up funds for a particular expenditure. There is no tax on interest earned, contribution room is replenished in the following year to match any withdrawals, and money can be withdrawn for any purpose.

Your education

You can use the Lifelong Learning Plan to use up to $20,000 of your RRSP savings for education purposes. If you don’t repay the money, it is included as income and taxed.

You can use money in your TFSA for anything you wish. While deposits don’t generate tax deductions like RRSPs, investment income earned in a TFSA grows tax-free, withdrawals don’t have to be repaid, and you can take it out any time without tax penalties.

Your child's education

RESPs are designed to help save for a child’s education, and they have the significant advantage of triggering Canada Education Savings Grants (CESG), which deposit at least an additional 20% into the plans. The investment earnings of the RESP and the CESG are included in income and taxed to the child who withdraws the funds.

If you have contributed enough to trigger the maximum CESG of $7,200 per child, and your child is age 18, gift $5,500 to your child, who can then use this amount to open a TFSA. Save even more (which can then be withdrawn completely tax free).

Buying your first home

The Home Buyers’ Plan (HBP) lets first-time buyers withdraw up to $25,000 of RRSP savings to use toward the down payment. Money borrowed via the HBP must be repaid on a schedule, or it is counted as income and taxed.

Using a TFSA to save for/buy a home has advantages. First-time buyers who want to save more than $25,000 (or $50,000 per couple) can build their savings in a TFSA (subject to maximum TFSA contribution amounts). With a TFSA, you don’t pay taxes, and you don’t have to repay the money. Also, withdrawals replenish the TFSA room in the next year, something that doesn’t happen with RRSPs.

Buying a second property

If you’re thinking of buying a larger house or an additional property, or downsizing, putting the money in a TFSA will let your savings grow tax-free. Since you don’t have access to the Home Buyer’s Plan, using a TFSA to save and enjoy tax advantages is smart planning.

Taxes and retirement



Earn more than your spouse

A spouse can open a TFSA using money that their spouse has gifted to them. Use this strategy together with spousal RRSP contributions and pension splitting rules, and you’ve got an effective, efficient way to minimize a couple’s tax burden and maximize income.

Maxed out RRSP contributions

If you regularly use all your RRSP contribution room, maxing out your TFSA as well can add to your savings. This is a great way to build retirement funds on a tax-assisted basis.

Company pension plan

Company pensions are good news, no doubt about it. But having a company pension results in a Pension Adjustment that reduces your RRSP room for the next year. Again, putting your savings into a TFSA effectively helps to build your retirement funds.

RRIF withdrawals

If you’re 71 or older and have to make RRIF withdrawals, but are lucky enough not to need the money, put the withdrawals into a TFSA. You’ll continue to grow your savings on a tax-assisted basis, and you won’t have to worry about taxes when you decide to use the money.

Government benefits

RRSP withdrawals can result in triggering the OAS claw back. TFSA earnings and withdrawals don’t affect these and other income-tested benefits at all. While the benefits of RRSPs may be debatable for lower-income earners, the benefits of TFSAs are clear: they provide the tax deferral benefits of an RRSP without any of the drawbacks.



Contact your advisor to find out more about a TFSA with Standard Life.

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