TFSA Questions and Answers
Have a question about the Tax-Free Savings Account (TFSA)? We've provided answers to the most common questions below. Don't see your question? Please speak with your advisor.
For details on the features and benefits of RBC Guaranteed Investment Funds (GIFs), visit our Segregated Funds section.
General Questions
Contribution Questions
Withdrawal Questions
Additional Questions
General Questions
Q: What is a TFSA?
A: A Tax-Free Savings Account (TFSA) is a new registered account introduced by the Federal Government in the 2008 Budget. Investment income and capital gains in the account will grow tax-free. The TFSA is available starting January 2009.
Q: What can a TFSA be used for?
A: A TFSA can be used to save for a variety of short-term and long-term goals.
Plus, if you've maximized your Registered Retirement Savings Plan (RRSP) contribution room or can no longer make RRSP contributions, an RBC GIF TFSA could be the solution. Another great opportunity is to potentially use your RBC GIF TFSA for income-splitting with your spouse. And, just like your RBC GIF RRSP, you can make automatic contributions on a regular basis.
Q: Who is eligible for a TFSA?
A: All Canadian residents age 18 and older with a Social Insurance Number can open a TFSA.
The age of majority is 19 for residents of Newfoundland and Labrador, New Brunswick, Nova Scotia, British Columbia, Northwest Territories, Yukon and Nunavut, which may delay the opening of a TFSA. However, the accumulation of contribution room will start at age 18.
Q: How is a TFSA different from an RRSP?
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- Withdrawals from a TFSA are tax-free and do not result in lost contribution room.
- Contributions to a TFSA are not tax deductible.
- With a TFSA you don't need earned income to accumulate contribution room.
- There is no requirement to convert the TFSA to an income payment option (i.e. RRIF) at any age.
- You can give money to your spouse to open a TFSA without being subject to the Canada Revenue Agency's (CRA) attribution rules.
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For more details on the differences, see Comparing TFSAs and RRSPs.
Q: When can I start saving and investing in a TFSA?
A: You can start in January 2009.
Q: What investment options are available for TFSAs?
A: The investment options are similar to the investment options available for your RRSP. RBC Guaranteed Investment Funds are qualified investments under the TFSA.
Q: Do I need to have a particular income level to take advantage of a TFSA?
A: There is no minimum or maximum income level. Every eligible person will accumulate contribution room each year starting in 2009.
Q: Can I open a joint TFSA account?
A: No. Similar to registered retirement accounts, such as RRSPs, government rules only permit individual accounts.
Q: Is the TFSA available to be opened in the name of non-personal business clients?
A: No, as a registered account, the TFSA can only be opened in a personal client's name.
Q: Will the TFSA have any impact on my government guaranteed income supplements?
A: Investment income and withdrawals from a TFSA will have no impact on Federal benefits and credits but it is unclear for provincial programs.
Contribution Questions
Q: How much am I allowed to contribute per year?
A: You can contribute up to $5,000 each year. This contribution limit will increase along with inflation in future years, in $500 increments (subject to government guidelines).
Q: If I am earning no income, can I still make contributions to my TFSA?
A: Yes. If you are eligible, you will accumulate contribution room each year—even if you have earned no income.
Q: If I am unable to contribute in a given year, will I be able to use my unused contribution room in a future year?
A: Yes. Your unused contribution room can be carried forward indefinitely. There is no limit on how much contribution room you can accumulate.
For example, if you contribute $3,000 to your TFSA in 2009, your contribution room for 2010 will be $7,000 ($2,000 carried forward from 2009 plus $5,000 for 2010).
Also, TFSA contributions are in addition to any RRSP contribution room you may have.
Q: What happens if I over contribute for the year?
A: Similar to an RRSP, a penalty will be assessed by Canada Revenue Agency (CRA) of 1% per month on your excess contribution.
Q: How will I know what my TFSA contribution room is for a given year?
A: Canada Revenue Agency (CRA) will track your contribution room. CRA intends to report this amount to individuals on their Notice of Assessment and through the "My Account" function on the CRA web site.
Q: Is there a lifetime contribution limit?
A: There will be no lifetime limit on the amount of your contributions. If you are eligible, you will accumulate $5,000 every year, which will increase with inflation, in $500 increments.
Q: Can I contribute to my spouse or common-law spouse's TFSA?
A: No. However, money you give to your spouse to contribute to his or her TFSA will not be subject to CRA's income attribution rules. The TFSA allows both you and your spouse to earn tax-free investment income, regardless of which spouse contributed the funds.
Q: If I give funds to my spouse to contribute to his or her TFSA, who will get the income, me or my spouse?
A: Your spouse owns the TFSA and will earn any investment income and capital gains in the account.
Withdrawal Questions
Q: Can I withdraw the money I've contributed to my TFSA for any purpose or for specific circumstances?
A: You can withdraw amounts for any purpose. There are no restrictions. However, when investing in RBC Guaranteed Investment Funds, withdrawals may be subject to fees and will proportionately reduce your principal guarantees.
Q: Are withdrawals subject to income tax?
A: No. Withdrawals can be made tax-free and will not increase your income for the year. Since withdrawals will not be taxed and will not be considered taxable income, there will be no impact to your income-tested benefits and credits from the Federal Government, such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS) or credits such as the Age Credit.
Q: If I withdraw money from my TFSA, can I re-contribute this withdrawn amount later on in the tax year?
A: Withdrawals you make in the current calendar year will be added to your unused contribution room. Amounts can't be re-contributed until the following calendar year or later.
Additional Questions
Q: If I pass away, what happens to the income and gains in my TFSA?
A: The value of the plan as of your date of death will not be subject to tax. However, any growth in value after that date will be taxable to the recipient when paid out to them, or taxed in the TFSA if not paid out by the end of the calendar year following the year of death, unless your surviving spouse or common-law partner becomes the successor holder of the TFSA.
Q: If there is a breakdown of a marriage or common-law partnership, what will happen to my TFSA?
A: TFSA assets may be transferred between spouses or common-law partners upon marriage or relationship breakdown but the transfer will not reinstate contribution room of the transferring spouse or reduce the contribution room of the receiving spouse.
Q: How are losses treated in a TFSA?
A: As investment income and capital gains within the TFSA are not taxed, any losses generated in the account can't be used against other taxable gains.
Q: Where can I get more information regarding the TFSA?
A: The Canada Revenue Agency (CRA) is committed to providing you with up-to-date information. For more details about TFSAs from the CRA, click here.
Information about the Tax-Free Savings Account is based on what is currently available from the Canadian government.
This information is being provided for general information purposes only and the contents should not be relied upon as containing specific financial, investment, tax or related advice. Clients must seek their own independent advice.
Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. RBC Guaranteed Investment Funds are segregated funds and are referred to as individual variable annuity contracts. RBC Life Insurance Company is the sole issuer and guarantor of the guarantee provisions contained in these contracts. The underlying mutual funds and portfolios available in these contracts are managed by RBC Global Asset Management Inc. When clients deposit money into a RBC Guaranteed Investment Funds contract, they are not buying units of the RBC Global Asset Management Inc. mutual fund or portfolio and therefore do not possess any of the rights and privileges of the unitholders of such funds.
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