TFSA

A new way to save

Tax-free savings accounts were introduced by the federal government in the 2008 budget as an incentive for Canadians to save and invest for their future. While other countries, such as the U.S. and the United Kingdom, already have similar savings accounts, it is the first of its kind in Canada. The government is calling the TFSA the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP) in 1957.

“We must ensure Canadians have the right incentives to save for the future.” Government of Canada, 2008 budget, February 2008

Source: CI Investments Inc.

TFSA Basics

How does a TFSA work?

A tax-free savings account is a registered savings vehicle, where contributions are made with after-tax dollars and withdrawals are tax free. This means that money can be earned in the account and withdrawn at any time without being taxed.
TFSA versus a non-registered account

Capital gains and other investment income earned in a TFSA are not taxed.

So, if you contributed $5,000 a year for 20 years to a TFSA, you would enjoy a total tax savings of $51,865 over a non-registered account.

Assumes a $5,000 annual contribution for 20 years, a 6% rate of return and an average tax rate of 45%.

The table shown here is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of invested contributions. The rate of return is for illustrative purposes only.

As of 2009, any Canadian resident over the age of 18 can save up to $5,000 every year in a TFSA. The $5,000 annual contribution limit will be indexed to the Consumer Price Index and rounded to the nearest $500. There is a 2% rate of inflation, the first increase was in 2012 and is now $5,500.

TFSA vs Taxable Investment

Use this calculator to compare the growth of a TFSA to a taxable investment.

To see an example of how to calculate TFSA contribution room click here.

Source: CI Investments Inc.

TFSA or RRSP

TFSAs can hold the same investments as other registered accounts, including

Mutual Funds
Segregated Funds
Stocks, Bonds
GICs

But they are different from RRSPs because any amount withdrawn from the account is automatically added back to the contribution room for the following year. Any unused contribution room can be carried forward indefinitely to future years.

TFSAs are more flexible in other ways than RRSPs, which require you to have an earned income and be under the age of 71 in order to make a contribution.

TFSA	RRSP
For virtually all savings and investment objectives	Primarily for retirement savings
Contributions are made with after-tax income	Contributions are tax deductible
Contribution room is added back when withdrawals are made	Contribution room is used up when withdrawals are made
Withdrawals are tax free	Withdrawals are added to income and taxed at your current rate
No requirement to withdraw at any age	Must be converted to a RRIF by age 71; withdrawals after that age are mandated according to a schedule based on age
Contributions can be made any time for those age 18 and older	Contributions cease at age 71
Annual maximum contribution – $5,000 indexed to inflation	Annual maximum contribution – 18% of earned income in the previous year to a maximum of $21,000 in 2009

Click here to learn how taxation can affect your choice.

Source: CI Investments Inc.

The Assante Advantage

Making an investment decision

Tax-free savings accounts can be valuable tools in financial planning. They can be used in many ways – for an emergency fund, for short or medium-term savings for a specific purpose, to generate supplemental income, or for long-term investments.

Since TFSAs are an excellent way to save for a house or for future education needs, they can provide a great alternative to tapping into an RRSP.

With a TFSA, investors can:

Top up their retirement savings, beyond RRSP contributions
Save tax free even if they have little or no contribution room in their RRSP (for those over the age of 71, or those with large pension adjustments)
Use a spouse’s or adult children’s TFSA for income splitting
Use a TFSA for estate planning purposes

Talk to your financial advisor

With Assante, your advisor has exclusive access to the United Financial brand of solutions – Evolution Private Managed Accounts, Optima Strategy – managed by CI Investments Inc. With active management from portfolio managers around the world, these leading solutions combine investment expertise with wealth planning strategies. For high net worth clients with more complex wealth planning needs, we offer our exclusive Private Client Managed Portfolios through the United Financial, division of CI Private Counsel LP.

Talk to your Assante advisor about the best way to incorporate a TFSA into your savings and investment plan.

Private Client Managed Portfolios

Offered through United Financial, a division of CI Private Counsel LP, Private Client Managed Portfolios combine a customized, tax-efficient investment plan with the power of comprehensive personalized wealth planning for all your family’s assets.

Evolution Private Managed Accounts

Evolution offers clients an innovative investment solution that is beyond a traditional portfolio. It is designed to meet any client’s level of risk tolerance and growth expectations, with the additional power to apply specific investment strategies to their portfolio – further enhancing the customization.

Optima Strategy

Optima Strategy is a complete investment program that’s tailored specifically to your investment objectives, cash needs, capital preservation and tax situation. It offers broad diversification across more asset classes than most other investment programs, allowing us to more precisely diversify your portfolio.

Source: CI Investments Inc.

TFSA Calculator

The following link is from the Government of Canada website and is for illustration purposes only. Please discuss any results with your financial advisor. Click here to view TFSA Calculator.

Source: CI Investments Inc.