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Tax-Free Savings Account
Eligibility
Age 18 or older
Starting in 2009, all Canadian resident taxpayers at least 18 years old will be allowed to open up a TFSA. The only other requirement is that the individual must have a Social Insurance Number (SIN) when the account is opened.
Application checklist
The TFSA must have its own application form, separate from other account types. In completing the form, be sure to double check that you have correctly recorded your surname, SIN and date of birth, as CRA has warned that if these items do not match with its records, the plan will be deregistered and tax will be payable on any earnings which may have occurred in the plan to that date.
Contributions
Contribution room beginning January 1, 2009
Each eligible individual will be entitled to the initial annual limit of $5,000 of TFSA contribution room in 2009.
Annual indexing
An indexing formula will be applied annually to determine whether the TFSA contribution room will increase. The resulting figure will be rounded to the nearest $500. For example, if the calculation for 2010 yields a figure of $5,200, then room for 2010 will remain at $5,000. If the 2011 calculation brings it to $5,400, then the actual 2011 room will be $5,500.
Unlimited carryforward
Contribution room is cumulative and will be carried forward indefinitely to future
years. For example, if you can only afford to contribute $2,000 in 2009, your
TFSA contribution room will be $8,000 in 2010 ($3,000 carried forward from 2009 plus $5,000 as your annual entitlement for 2010).
Recovery of contribution room
Unlike the RRSP system where contribution room is completely exhausted as it is used, any amounts withdrawn from your TFSA in a particular year are automatically added to your TFSA contribution room for the following year (and again may be carried forward indefinitely). Fitting with the flexible nature of the account, this will allow individuals to re-contribute an equivalent amount in a future year.
