Tax-Free Savings Account

Today’s Conservative budget introduced a new kind of savings account – Tax- Free Savings Account (TFSA). TFSA is something like an RRSP account with some major differences. Savings in TFSA account will not be tax deductible and withdrawals will be tax free. Let’s look at some TFSA highlights:

• TFSA will start next year. Canadians aged 18 and older can save up to $5000 a year.

•  Contributions will not be tax deductible but income and gains will not be taxed.

• No taxes to pay when you withdraw money out of TFSA.

• Unused room can be carried forward indefinitely.

• Amount withdrawn will create equal contribution room

•  Income earned or withdrawals will not affect eligibility for Federal benefits.

TFSA seems to be a good idea but the vast majority Canadian population do not save anything and giving a tax break in a savings account will not do any good to those. The government estimates TFSA will save taxpayers about $50 million a year. These savings will go to those who can afford to save, not to those who have no savings whatsoever.

For more info on TFSA – Click here or here(pdf)

The following is an Excerpt from my first book Invest Now. Invest Now is jam-packed with timely information and timeless advice for the beginning Canadian investor. Invest Now covers a broad range of topics including Why We Don’t Save. Invest Now will be published in a few days.
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Most Canadians were never taught any personal-finance lessons in school and in university; it is no wonder our savings rate is one of the lowest among industrialized nations. To make things worse, Statistics Canada reports that our average savings rate went below zero for the first time in 2006. This is scary—why is it happening?
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