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Saturday, November 15, 2008

Tax Free Savings Account

From The Hoss's Mouth

tax freeThe Tax Man Gets Every Penny

Hoss Cents Free Financial Money Magazine applauds the Canadian Government for the introduction of the Tax Free Savings Account (TFSA). Effective in 2009, Canadians 18 years or older will be able to contribute up to $5000 per year to a TFSA. These accounts can be in the form of mutual funds, stocks, bonds and GICs.

Given the state of today's economic crisis, the Tax Free Savings Account will provide a much needed incentive for investors to continue to invest their savings and not run for the hills with their money.

Take a look at these highlights.

  • All income earned in a TFSA, including capital gains will not be taxed even when withdrawn.
  • Unused contribution room can be carried forward to future years
  • Any funds withdrawn can be put back in at a later date without reducing your contribution room
  • Federal income-tested benefits and credits will not be effected by a TFSA
  • You can contribute to a spouse's TFSA.
  • Assets can be transferred to a spouse upon death

The Hoss and Mrs. Hoss will have to replace the roof put on our house within the next few years. Over the next two years we can redirect $20000 of our current investments into TFSA ($5000 each per year).

This will be more than enough to pay for our roof. We can then withdraw the money from our TFSA (with no penalty) pay for the roof and then again redirect some of our current investments to top of our TFSA to $20000.

The Government of Canada has provided a tax free savings account calculator at
Tax Free Savings Account Calculator

You can use this tool to calculate your estimated tax savings. For example the Hoss and Mrs Hoss, each making a maximum $5000 per year contribution over the next 10 years with an estimated return of 5% will save a total of $6802.

This makes the Tax Free Savings Account a valuable savings tool for all Canadians and may help ease some of the concerns caused by the current economic crisis.

Stay on track,

The Hoss

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