Charpress.com Home of News | Views | Reviews & Much More

Join the discussion and stay upto date


Have you ever wished you could save money in your savings account and not be taxed for it? Well, a Tax-Free Savings Account (TFSA) is the answer to that wish. These are registered plans that earn interest without any tax. TFSAs are a relatively new phenomenon which was introduced in Canada in 2009.

It is quite simple to open and operate a TFSA. The procedure is similar to that of opening a regular savings account and requires certain eligibility criteria to be met. To meet the eligibility criteria, you must be a resident of Canada or a qualifying non-resident and have a valid Social Insurance Number. Apart from this, the minimum age threshold is 18 years. A point to be noted here is that a qualifying non-resident may have to shell out 1% of tax on their contributions.

TFSAs are easily available and can be opened via banks and other financial institutions like Insurance firms, Investment companies, Credit Unions, Discount Brokerages, Robo-advisors and any other similar means.

Like every great thing, even TFSA’s have a catch! One cannot contribute an unlimited amount of money to a TFSA account. There is a limit that needs to be complied with while making contributions annually. As of 2024, this ceiling has been set at $7000. An important factor to note here is the contribution room- which is a sum of all such annual limits that have been prescribed since 2009. To make this simpler, let’s assume David turned 18 in 2019. His contribution room by the end of 2023 would be the sum of annual limits imposed during this year. This would come up to $30500, which has been arrived at by totalling the limits for the respective years( $6000+$6000+$6000+$6000+$6500=$30500)

Am I required to calculate the TFSA contribution room by myself?

An ideal way to calculate the TFSA contribution room would be to keep track of your contributions and calculate them yourself. Though this information can be accessed on the CRA website- which is the Canada Record Agency’s official website, it may only sometimes be accurate as the information regarding your contributions and withdrawals is updated on an annual basis. This brings us to the question of how withdrawals can be made from TFSAs:

Based on the type of TFSA, withdrawal is allowed at any time. There are Registered Guaranteed Investment Certificates (GICs), also known as fixed deposits, which are usually locked in for a pre-determined period and cannot be withdrawn until the lock-in period is over. One can also choose the type of GIC- A redeemable or a non-redeemable one. A redeemable GIC allows you the flexibility of withdrawing funds when you need money, albeit at a lower interest rate. A Non-redeemable GIC cannot be encashed at will and earns a higher interest rate.

One can choose a TFSA based on the financial goals. For example, if you are looking at creating an emergency fund or saving for a short period for a purpose like making a down payment on your home, then a High-Interest TFSA is your go-to option. Apart from giving you a tax exemption, this type of account pays you a high interest rate on your savings.

There are TFSA investment accounts as well, which give you the option to invest in TFSA funds. An investment in a TFSA fund can either be guided through certain financial institutions or you could self-manage them.

Is a TFSA complicated?
On the contrary, a TFSA is quite simple to understand and manage. Once your current limit is ascertained, you contribute up to that limit, and your money keeps growing by accumulating interest while being exempted from taxation. A TFSA is also an investment account as it can be used to purchase products that are meant for investment, like- Bonds, Stocks, GICs, Exchange Traded Funds, Mutual Funds and so on.

Are there instances where I can be taxed on my TFSA?
While the name implies that these are tax-free savings accounts, there are instances when TFSAs can be taxed. For example, if you move out of the country and become a non-resident of Canada, then you would be taxed 1% on any deposit that exceeds your contribution limit. The same 1% taxation also applies to resident Canadians who exceed their contribution limit, and this amount is levied until the account is brought back below the limit.

A TFSA is meant to encourage personal savings. If a TFSA is used for purposes other than savings, like day trading, then the Revenue Agency defines this as a business use case and will tax capital gains from day trading at marginal tax rates.

Can a TFSA be differentiated from a Registered Retirement Savings Plan or are they the same?

The tax component is the major factor that differentiates between a TFSA and a Registered Retirement Savings Plan. The contributions made towards an RRSP are not taxed annually, but the final withdrawal is taxable. TFSA’s withdrawals are mostly Tax-Free unless the aforesaid conditions are not met.

List some of the best TFSA Savings Account Interest Rate providers in Canada?
Now that we have a fair idea of what a TFSA is and how it operates, let us take you through some of the best interest rate providers on TFSAs in Canada:

Tangerine Tax-Free Savings Account tops the list with up to 6% interest rate, followed by Manulife bank Tax-Free Advantage Account at 5.50%, CIBC TFSA Tax Advantage Savings Account at 5.00%, Wealth One Tax-Free Savings Account at 4.00%. As much as a high-interest rate is the most attractive factor while selecting a TFSA, be very sure about the type of TFSA you are opting for and whether or not it aligns with your financial goals.

Conclusion:
TFSAs are a great option for some tax-free investments and help you save and grow your money. Before you choose a TFSA, make sure you have checked your options both online and offline to find a good interest rate and one that has the requisite features.

FAQ’s:

Q. Are TFSA’s completely free?
In reality, a TFSA is not completely free. Most TFSA accounts have no monthly and transaction fees. However, one may be required to hold a paid checking account and pay fees applicable for TFSA investments.

Q. How much interest do TFSA accounts earn on average?
The interest rate varies based on one financial institution to the other, and rates can go up to 6% and as low as 1%.

Q. Which is better for me- a TFSA or an RRSP?
This depends on the financial goals you have set out for yourself and the period for which you are looking to contribute. TFSAs are great for day-to-day savings and short to medium-term achievement of financial goals. Though RRSPs offer tax breaks for the year in which they are being deposited, an ultimate withdrawal is taxable.

Q. If I contribute beyond a limit to my TFSA account, will I be penalised for it?
Yes, excess contributions are taxed at 1% until the contributions are brought within the limit. Apart from this, you will be required to file Form RC243, TFSA Returns and pay taxes, which are required to be paid by June 30 of the next year.

Q. If I transfer my TFSA, will it count as a withdrawal?
To avoid a transfer being counted as a withdrawal, ask the new financial institution that you join to initiate a transfer of the Savings Account.

The Best TFSA Savings Account Rates in Canada for January 2024

Have you ever wished you could save money in your savings account and not be taxed for it? Well, a Tax-Free Savings Account (TFSA) is the answer to that wish. These are registered plans that earn interest without any tax. TFSAs are a relatively new phenomenon which was introduced in Canada in 2009.

It is quite simple to open and operate a TFSA. The procedure is similar to that of opening a regular savings account and requires certain eligibility criteria to be met. To meet the eligibility criteria, you must be a resident of Canada or a qualifying non-resident and have a valid Social Insurance Number. Apart from this, the minimum age threshold is 18 years. A point to be noted here is that a qualifying non-resident may have to shell out 1% of tax on their contributions.

TFSAs are easily available and can be opened via banks and other financial institutions like Insurance firms, Investment companies, Credit Unions, Discount Brokerages, Robo-advisors and any other similar means.

Like every great thing, even TFSA’s have a catch! One cannot contribute an unlimited amount of money to a TFSA account. There is a limit that needs to be complied with while making contributions annually. As of 2024, this ceiling has been set at $7000. An important factor to note here is the contribution room- which is a sum of all such annual limits that have been prescribed since 2009. To make this simpler, let’s assume David turned 18 in 2019. His contribution room by the end of 2023 would be the sum of annual limits imposed during this year. This would come up to $30500, which has been arrived at by totalling the limits for the respective years( $6000+$6000+$6000+$6000+$6500=$30500)

Am I required to calculate the TFSA contribution room by myself?

An ideal way to calculate the TFSA contribution room would be to keep track of your contributions and calculate them yourself. Though this information can be accessed on the CRA website- which is the Canada Record Agency’s official website, it may only sometimes be accurate as the information regarding your contributions and withdrawals is updated on an annual basis. This brings us to the question of how withdrawals can be made from TFSAs:

Based on the type of TFSA, withdrawal is allowed at any time. There are Registered Guaranteed Investment Certificates (GICs), also known as fixed deposits, which are usually locked in for a pre-determined period and cannot be withdrawn until the lock-in period is over. One can also choose the type of GIC- A redeemable or a non-redeemable one. A redeemable GIC allows you the flexibility of withdrawing funds when you need money, albeit at a lower interest rate. A Non-redeemable GIC cannot be encashed at will and earns a higher interest rate.

One can choose a TFSA based on the financial goals. For example, if you are looking at creating an emergency fund or saving for a short period for a purpose like making a down payment on your home, then a High-Interest TFSA is your go-to option. Apart from giving you a tax exemption, this type of account pays you a high interest rate on your savings.

There are TFSA investment accounts as well, which give you the option to invest in TFSA funds. An investment in a TFSA fund can either be guided through certain financial institutions or you could self-manage them.

Is a TFSA complicated?
On the contrary, a TFSA is quite simple to understand and manage. Once your current limit is ascertained, you contribute up to that limit, and your money keeps growing by accumulating interest while being exempted from taxation. A TFSA is also an investment account as it can be used to purchase products that are meant for investment, like- Bonds, Stocks, GICs, Exchange Traded Funds, Mutual Funds and so on.

Are there instances where I can be taxed on my TFSA?
While the name implies that these are tax-free savings accounts, there are instances when TFSAs can be taxed. For example, if you move out of the country and become a non-resident of Canada, then you would be taxed 1% on any deposit that exceeds your contribution limit. The same 1% taxation also applies to resident Canadians who exceed their contribution limit, and this amount is levied until the account is brought back below the limit.

A TFSA is meant to encourage personal savings. If a TFSA is used for purposes other than savings, like day trading, then the Revenue Agency defines this as a business use case and will tax capital gains from day trading at marginal tax rates.

Can a TFSA be differentiated from a Registered Retirement Savings Plan or are they the same?

The tax component is the major factor that differentiates between a TFSA and a Registered Retirement Savings Plan. The contributions made towards an RRSP are not taxed annually, but the final withdrawal is taxable. TFSA’s withdrawals are mostly Tax-Free unless the aforesaid conditions are not met.

List some of the best TFSA Savings Account Interest Rate providers in Canada?
Now that we have a fair idea of what a TFSA is and how it operates, let us take you through some of the best interest rate providers on TFSAs in Canada:

Tangerine Tax-Free Savings Account tops the list with up to 6% interest rate, followed by Manulife bank Tax-Free Advantage Account at 5.50%, CIBC TFSA Tax Advantage Savings Account at 5.00%, Wealth One Tax-Free Savings Account at 4.00%. As much as a high-interest rate is the most attractive factor while selecting a TFSA, be very sure about the type of TFSA you are opting for and whether or not it aligns with your financial goals.

Conclusion:
TFSAs are a great option for some tax-free investments and help you save and grow your money. Before you choose a TFSA, make sure you have checked your options both online and offline to find a good interest rate and one that has the requisite features.

FAQ’s:

Q. Are TFSA’s completely free?
In reality, a TFSA is not completely free. Most TFSA accounts have no monthly and transaction fees. However, one may be required to hold a paid checking account and pay fees applicable for TFSA investments.

Q. How much interest do TFSA accounts earn on average?
The interest rate varies based on one financial institution to the other, and rates can go up to 6% and as low as 1%.

Q. Which is better for me- a TFSA or an RRSP?
This depends on the financial goals you have set out for yourself and the period for which you are looking to contribute. TFSAs are great for day-to-day savings and short to medium-term achievement of financial goals. Though RRSPs offer tax breaks for the year in which they are being deposited, an ultimate withdrawal is taxable.

Q. If I contribute beyond a limit to my TFSA account, will I be penalised for it?
Yes, excess contributions are taxed at 1% until the contributions are brought within the limit. Apart from this, you will be required to file Form RC243, TFSA Returns and pay taxes, which are required to be paid by June 30 of the next year.

Q. If I transfer my TFSA, will it count as a withdrawal?
To avoid a transfer being counted as a withdrawal, ask the new financial institution that you join to initiate a transfer of the Savings Account.