
There are basic uses for the Tax-Free Savings Account (TFSA) for investment planning purposes.
The TFSA has now been reverted back to $5,500 from $10,000 contribution per year. Here are the facts:
- The new Liberal government announced that they would reduce the contribution amount for TFSA and re-introduce indexing to inflation for the annual limit. The upside is that they also said they will allow Canadians to keep the full $10,000 of contribution room for 2015, whether they used it or not.
- Effectively they “grandfathered” the $10,000 TFSA limit for 2015 meaning that there is really no urgency to rush out and get that $10,000 contributed for 2015. That contribution room will carry forward indefinitely.
- The total contribution amount for January 1, 2016, for a Canadian who has never contributed to a TFSA will be $46,500 if the individual was 18 or older in 2009 when the TFSA was created.
The TFSA has many advantages for investors:
1. Retirement planning. TFSAs can benefit individuals who are looking to invest in their retirement but are unable to contribute to RRSPs for various reasons.
2. Education planning. Consider using both the traditional RESP and the TFSA as an educational savings vehicle. A TFSA offers parents another tax-efficient method for this investing.
3. Income splitting with spouses and children (over 18). TFSAs go beyond normal attribution rules, which offer income splitting to high-income spouses and partners and children over 18 years old.
4. Estate planning. Individuals can name surviving spouses and partners as successor account holders, ensuring the tax-free status of a TFSA will continue after death. Note: The TFSA allows funds to be rolled over to the successor annuitant, up to Dec. 31 of the year following the year of an annuitant’s death. Form RC240 must be completed for this to happen.
Talk to your advisor as legislation can change with regard to registered plans.