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        Newsletter Page 3 - Toronto Certified General Accountant

      Newsletter December 2008

Personal Income Tax (Cont'd - Page 3)

      New Tax-Free Savings Account (TFSA)
  • The TFSA is available for Canadian residents over the age of 18
  • You can contribute up to $5,000 annually to a TFSA
  • Any income earned in the TFSA is tax-free (Note: Financial Institutions may charge an
    administrative fee for a TFSA)
  • Withdrawals can be made from the TFSA free of tax (Note: Withdrawal restrictions may apply
    based on the type of investment)
  • If you contribute less than the annual maximum amount of $5,000, you can make a catch up
    contribution in a subsequent year so that you can always have a balance of $5,000 per year
  • You don’t have to earn income to be entitled to contribute to a TFSA like you do for an RRSP
  • The TFSA can be used as collateral for a loan
  • Use the TFSA to save for specific purposes:
    1. Emergency cash fund – have at least three months of your salary set aside during
      this downturn
    2. Help your adult children – you can help your adult children with a major purchase such
      as a home by giving them the money to contribute to his or her TFSA
    3. Supplement education savings – in addition to the RESP (Registered Education Saving
      plan) you can use the TFSA when saving for the future education of a child; don’t stop
      your RESP contributions as you get free money (up to $500 per year) from the
      government that helps your RESP grow
    4. Supplement retirement savings – in addition to your RRSP you can add to your
      retirement savings by contributing to a TFSA, especially if you have used up your
      RRSP contribution room; contributions to the TFSA are not tax deductible as they are
      for RRSPs
    5. Help tax-loss selling decisions – if you have sold or are thinking of selling a stock
      (outside of your RRSP) that has dropped in value during this downturn in order to use
      the resulting capital loss*, but you still think that the stock will rebound, repurchase the
      stock inside your TFSA (to the extent of the contribution limit) as the capital gains will
      be sheltered from tax
    6. Save for a car, wedding, vacation, home renovation, or something else – you might as
      well use the tax-sheltering of the TFSA to save for these things

        *capital losses are used to recover tax from any capital gains in the current year first, then
          from any capital gains from the past three years or from future years

         Dean Constand C.G.A. publishes this newsletter for informational purposes only.
       Although the material contained within this document has been carefully prepared,
                                        it is not a substitute for professional advice.

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Dean Constand (Toronto Certified General Accountant)                                       Email Contact: accountant@deanconstandcga.com

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