TFSA - Tax Free Savings Account

In general, people have a heavy heart when they pay taxes, as no one likes to pay up a part of their hard-earned earnings as tax.

What gives a better feeling than saving up on tax in a legitimate way? A Tax Free Savings Account is a tool to grow your money, without having to pay tax liabilities. We get skeptical whilst using such concessional accounts and question the security of the funds within.

Let’s find out if TFSA, Canada is a safe haven.

Is TFSA, Canada safe?

Yes, Tax-Free Savings Account (TFSA), Canada is one of the safest places to park or invest your money. It is offered by authorized financial institutions such as banks, credit unions, insurance providers, trusts and trading platforms.

Benefits of a TFSA in Canada

• Tax-free shelter to grow your money

• You can contribute additional money every year

• You can access or withdraw your funds anytime

• You can invest your money in shares, bonds, ETFs, GICs or mutual fund

• You can gift your money to contribute to spouse’s TFSA and vice versa

• You can nominate beneficiaries for the assets to pass on to your nominees without affecting their tax position.

• It will help fund emergencies, as it can be withdrawn any time

• You can attach a TFSA as a collateral for a loan

Drawbacks of a TFSA

• Over-contributions face a penalty.

• Your creditors can claim the funds in your TFSA, in case you default repayments.

• The interest and capital gain you earn within a TFSA is not taxable. But, you cannot use it to claim deductions or tax credits for the contributions you make into a TFSA.

• You can withdraw funds from a TFSA anytime and this might break the discipline of some investors.

• If you do intraday trading within a TFSA, then it will be considered as a business activity. It will be taxed and treated just like a business income.

• If you own international shares such as US shares, then you are mandated to pay the withholding taxes.

TFSA Canada

Thus, TFSA Canada is a safe-house, until you use it wisely knowing all its rules and regulations. Further, it is important for every Canadian to invest and grow money within a TFSA to save up cash for their future.