General
Who can open a TFSA?
All Canadian residents who have reached age of majority and have a Social Insurance Number can open a TFSA. For provinces where age of majority is other than 18, contribution room will begin to accumulate at 18; however, you may not be able to open an account until age of majority.
What investment options are available for a TFSA?
The investment options are similar to the investment options available for an RRSP. Mutual funds, stocks and bonds and GICs will be available.
All MD funds will be available, with the exception of MD Stable Income Fund and the MD Income Fund. Non-qualifying securities (similar to non-qualifying RRSP securities) will be subject to a one-time fee equal to 50% of the fair market value of the security, plus the TFSA will become taxable.
Contribution Room
How much can I contribute per year?
You can contribute up to $5,000 each year. With inflation, the contribution limit will increase in $500 increments (at the discretion of the CRA). For example, if inflation is 3%, we could expect an increase in the limit to $5,500 in 2013.
Is there a minimum or maximum income required to take advantage of a TFSA?
There is no minimum or maximum income required. Every eligible person will accumulate contribution room each year starting in 2009, even if they have no income.
If I am unable to contribute in a given year, will I be able to use my unused contribution room in the future?
The unused contribution room can be carried forward indefinitely. There is no limit on how much contribution room can accumulate.
What happens if I over-contribute for the year?
Similar to an RRSP, a penalty will be assessed by CRA of 1% per month on the excess contribution.
How will I know what my TFSA contribution room is for a given year?
CRA will track the contribution room. They will be reporting this amount on Notices of Assessment (similar to how they report RSP contribution room).
Can I contribute to my spouse's TFSA?
A client can give money to a spouse to contribute to his or her own TFSA. This will not be subject to income attribution rules.
Withdrawals
Can I withdraw the money contributed to the TFSA for any purpose?
You can withdraw amounts for any purpose. There are no restrictions.
How often can I make withdrawals from the TFSA?
There are no limits to the number of withdrawals.
Are withdrawals subject to income tax?
Withdrawals are tax-free and will not increase a client's income. Since withdrawals are not taxed and will not be considered taxable income, there will be no impact to income-tested benefits, such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS) or certain income related tax credits.
If I withdraw money from a TFSA, can I re-contribute this withdrawn amount later on in the tax year?
Withdrawals made in a calendar year will be added to your unused contribution room. Amounts cannot be replaced until the following calendar year or later. For example: if $3,000 is removed in 2010, it can be replaced only in 2011 (this can be done in addition to the $5,000 annual allowance).
Events
What if I become a non-resident?
Non-residents will be allowed to maintain their TFSA. However, they will not be able to make further contributions, nor will they accumulate additional room, while a non-resident.
What happens in the event of death?
All income earned in the TFSA up to the date of death of the plan holder is tax exempt.
After the date of death, the TFSA can be transferred to the surviving spouse as a successor holder if so designated on the original plan documents. This means that, upon the death of the plan holder, the successor holder will become the new plan holder and the TFSA will maintain its tax-exempt status.
The TFSA can be transferred to the surviving spouse without affecting the survivor's contribution room. To accomplish this, a prescribed form must be filed with the CRA within 30 days of the transfer and the transfer must take place within the exempt period. The exempt period is the end of the calendar year following the year of death.
If the TFSA is a trusteed TFSA, the arrangement is deemed to be a TFSA and therefore is tax exempt until the end of the exempt period, or the date when the trust ceases to exist, whichever is earlier. During this period, any payments made to the beneficiary that represent the distribution of income earned or an appreciation in value since the date of death must be included in the beneficiary's income.
If there is a breakdown of a marriage what will happen to the TFSA?
TFSA assets may be transferred between spouses on marriage breakdown but the transfer will not reinstate contribution room of the transferring spouse or reduce the contribution room of the receiving spouse.
Contact your MD advisor today to book an appointment or to request that an application be mailed to you.
