As the most recent addition to Canadian investment vehicles, TFSAs were created in 2009 as a way for Canadians to accumulate savings and earn tax-free investment income. Residents of Canada (age 18 and older) with a valid SIN.
- TFSA contributions are not tax-deductable.
- Investment income and withdrawals are tax-sheltered.
- Like RRSPs, unused contribution room can be carried forward and used in future years.
- Type of investment fund is your choice, with options ranging from Segregated Investment Funds to Guaranteed Investment Certificates (GICs).
Over-contributions to your TFSA are subject to a 1% tax on the highest excess amount per month.
Example: (if you have a limit of $5000 in the given year)
January contribution: $3,000
February contribution: $1,500
March contribution: $1,000
In this case, an excess contribution of $500 was made in March.
Tax = 1% * $500* 10 months (March - December) = $50
In this particular case, $50 of taxes would have to be paid.