What is TFSA account in Canada?
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- Updated On:02-Dec-2022
- Replies:1
Short Answer
TFSA is Tax-free Savings account where you can invest in shares without incurring tax liabilities. So, let's grab some useful information on TFSA in Canada.
Detailed Answer
What is an investment account?
An investment account is established to own, invest or trade in shares, bonds, exchange traded funds or managed funds. You generally open a checking account to manage day to day cash flows. You open a savings account to bank your surplus cash flows to meet any emergencies. Once, you feel that you have sufficient funds to meet contingencies, you tend to open an investment account to grow your money, by taking calculated risk.
Types of Investment Accounts in Canada
In Canada, there are majorly 2 types of investment accounts
1. Registered investment accounts
2. Non-registered investment account
The difference between registered and non-registered accounts are, the registered accounts offer tax benefits. However, they have limitations such as the amount you can contribute into the account, age, purpose of investment etc.
Whereas, a non-registered investment account doesn’t offer any tax benefits, but is very flexible.
What is a TFSA in Canada?
TFSA is an abbreviation of Tax-Free Savings Account. It is one of the registered investment accounts and as the name suggests the capital gains, dividends and interest earned within this account is not included in your tax returns.
Even though the name says it is a savings account, you can own and invest in shares, debt funds, mutual funds or exchange traded funds within this account.
History of TFSA in Canada
TFSA was introduced 13 years ago, in the year 2009. The contribution limit in the beginning was 5,000 CAD per annum. It then increased to 5,500 CAD per annum in 2013, and it has been 6,000 CAD per annum from 2019 until 2022. They new 2023 contribution limit is set as $6,500.
A contribution limit is the maximum amount of funds you can newly introduce into the TFSA every year. Given its tax benefits, the government restricts the amount that can be transferred to a TFSA every year.
Canadian TFSA account
Any Canadian citizen or resident who has reached 18 years of age can open and start investing in TFSA to take advantage of its concessional tax treatment. Every penny saved is gold. Thus, minimizing your tax liability legitimately through a TFSA, paves way to spend such money on other activities, be it for savings, leisure, luxury or an emergency.
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Discussion (0)
There are various online brokerage platforms in Canada. We believe that Questrade, Scotia iTrade and CIBC investor's edge are the best alternatives to Wealthsimple.
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Tax-Free savings Account (TFSA), Canada can be considered the equivalent of Roth IRA, USA. Let's get into some more details on the similarities and differences, Roth IRS vs. TFSA.
Yes, Tax-Free Savings Account (TFSA), Canada is one of the safest places to invest your money. As a Canadian investor it may prove to be a good place to park your extra earnings.
No, you are not allowed to do day-trading within a Tax-free savings account in Canada. TFSA is an investment account and not a trading account as such.
Yes, you can lose money within a TFSA by paying taxes for over-contribution, investment management cost, account keeping fees, withholding taxes, capital losses etc.,
At present, the potential to open a brokerage account in Canada, while being a non-resident is complicated and has numerous terms and conditions. This varies from broker to broker. To become savvy in this topic, continue reading.
Yes, opening a Tax Free Savings Account or TFSA surely seems to be a good idea. In fact, TFSA is good for a person who is 18 years or above and is looking for long term investment.
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The contribution conditions within TFSA differs from circumstance to circumstance. Let's figure out in details how TFSA works for Canadian investors.