Learn more about how the TFSA can fit into your financial plan and find answers to additional questions you may have. Visit our FAQ section below or download our TFSA brochure.
- What is the Tax-Free Savings Account (TFSA)?
- How do I open my TFSA today?
- Who is a TFSA best suited for?
- What are your TFSA rates?
- Are there any fees for contributions, withdrawals or transfers for the BMO TFSA?
- What happens if I contribute more than my TFSA contribution room?
- How do contributions and withdrawals impact my taxes and income-tested benefits?
- What kind of investments could I hold in my TFSA?
- How do I decide which types of investments to hold in my TFSA?
- How is a TFSA different from an RRSP?
- Is interest on money borrowed to invest in my TFSA tax-deductible?
- Can I contribute to my spouse’s or common law partner’s TFSA?
- If I give funds to my spouse or common-law partner to contribute to his or her TFSA, will I be taxed on the withdrawals or income earned in their TFSA?
- Can I open a joint TFSA with my spouse or someone else?
- How will I know what my TFSA contribution room is for any given tax year?
- Can I hold more than one TFSA?
1. What is the Tax-Free Savings Account (TFSA)?
The TFSA is a type of registered savings account that allows taxpayers ages 18 and over to earn interest, other types of investment income and capital gains tax-free.
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3. Who is a TFSA best suited for?
A TFSA is best suited for any Canadian resident who is over 18 with a Social Insurance Number and who would like to save including:
- Individuals who want to access to funds on a tax-free basis before retirement.
- Individuals who have maximized their RRSP contributions.
- Seniors who have savings and are concerned about their investment earnings impacting federal income-tested benefits or credits (i.e. such as Old Age Security benefits, the Guaranteed Income Supplement, or the federal age credit.)
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6. What happens if I contribute more than my TFSA contribution room?
The Canada Revenue Agency will impose a tax of one per cent per month, for each month that the excess contribution remains in the account.
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7. How do contributions and withdrawals impact my taxes and income-tested benefits?
Although contributions to the account are not deductible for tax purposes, withdrawals of contributions and earnings from the account are tax-free and would not impact federal income- tested benefits.
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8. What kind of investments can I hold in a TFSA?
A TFSA is generally permitted to hold similar investments that a registered retirement savings plan (RRSP) can hold. This includes cash, mutual funds, publicly traded securities, GICs, bonds, and certain shares of small business corporations.
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9. How do I decide which types of investments to hold in a TFSA?
A TFSA should be part of an overall financial planning strategy that takes assets, liabilities, goals, income needs and risk into consideration. Since every individual’s financial situation is different, BMO can help you understand your investment options and help you make an informed decision as to how to invest the funds in your TFSA.
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10. How is a TFSA different from an RRSP?
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With a TFSA, you don’t need to have any income to accumulate the $5,000 per year contribution room
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With an RRSP, you must have income in order to accumulate contribution room
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Withdrawals from a TFSA are tax-free. Any amount withdrawn is then added to your contribution room in the following year, so that you could later recontribute the amount that you withdrew.
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Withdrawals from an RRSP are taxed in the year of withdrawal (with the exception of the Home Buyer’s Plan (HBP) and Lifelong Learning Plan (LLP) which are not taxed provided they are repaid on schedule). Any amount withdrawn can not be added to your contribution room in the following year.
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Contributions to a TFSA are not tax-deductible on your income tax return.
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Contributions to your RRSP are tax-deductible on your income tax return
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There is no requirement to convert the TFSA to an income payment option (e.g. a RRIFor an annuity) at any age
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An RRSP must be fully withdrawn or be transferred to a RRIF or annuity by the end of the year you turn 71.
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11. Is interest on money borrowed to contribute to my TFSA tax-deductible?
No, interest on money borrowed to invest in a TFSA is not deductible for tax purposes.
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12. Can I contribute to my spouse’s or common law partner’s TFSA?
Only the TFSA account holder can contribute to their own account. However, you could give money to your spouse or common-law partner and he/she could then contribute that money to his/her own TFSA.
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13. If I give funds to my spouse or common-law partner to contribute to his or her TFSA, will I be taxed on the withdrawals or income earned in their TFSA?
Withdrawals and income earned in the TFSA are not taxable to either you or your spouse/common-law partner regardless of whose money was used to make the contribution.
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14. Can I open a joint TFSA with my spouse or someone else?
Similar to other registered accounts, such as RRSPs, joint TFSAs are not allowed.
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15. How will I know what my TFSA contribution room is for any given tax year?
The CRA will determine TFSA contribution room for each eligible individual who files an annual T1 individual income tax return. Your financial institution which holds the TFSA will report your contributions and withdrawals, so that CRA will be able to keep track of how much contribution room you have used and how much you have left.
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16. Can I open more than one TFSA?
Yes. You can open more than one TFSA but, the total contributions to all your TFSA accounts cannot be more than your maximum contribution room for that year plus any carry forward room.
For example, your maximum contribution limit for 2009 will be $5,000, therefore you can open one TFSA to which you contribute $3,000 and another TFSA to which you contribute $2,000, so your total combined TFSA contributions equals the maximum of $5,000.
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