Tax-Free Savings Account (TFSA)


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Contenu de l'Onglet "WHO IS ELIGIBLE FOR A TFSA"

All individuals1 aged 18 and over who are Canadian residents qualify for a TFSA, and regardless of your current situation the TFSA provides many advantages.

You are a student who has a couple of projects in mind
If you work part time you can start building TFSA savings. There are only two conditions: you must be a Canadian resident, and you must be at least 18 years of age.

The TFSA could be the right choice for you
Are you saving up to move out on your own, attend school abroad, or travel to an exotic location? Whatever you have in mind, the TFSA will help you grow your savings tax-free. Plus, you can withdraw as much as you like, whenever you like and for any reason2.

2 Subject to the terms and conditions applicable to the selected investments

You would like to save for retirement

The TFSA doesn’t replace an RRSP but it can help you optimize your retirement strategies. When it comes to choosing between an RRSP and a TFSA, various factors have to be taken into account.

For example, if you currently have a low tax rate (e.g., you are a student), it may be better to start by contributing to a TFSA. Then, when you enter a higher tax bracket, you can withdraw the amount invested in your TFSA and transfer it to an RRSP. You may even qualify for a tax refund.

Can't decide between an RRSP and a TFSA?
One thing to consider is what your income-tax rate might be when you are ready to withdraw those funds. But if you are able to contribute to both an RRSP and a TFSA, so much the better!

Here is an example:

If your RRSP deduction rate (tax refund expressed as a percentage) is the same as the tax rate in effect after you retire, contributing to a TFSA is comparable to saving in an RRSP.

  • Tax refund: 45%
  • Tax rate after retirement: 45%
If your tax rate will be higher after retirement than before (which is the case for retirees affected by the Old Age Security Pension clawback), a TFSA is more advantageous than an RRSP.
  • Tax refund: 45%
  • Tax rate after retirement: 55%
If your tax rate will be lower after retirement than before (which is the case for most retirees), contributing to an RRSP is more advantageous than a TFSA.
  • Tax refund: 45%
  • Tax rate after retirement: 35%
RRSP TSFA
Scenario 1 Scenario 2 Scenario 3
2009 contribution $9,091 $9,091 $9,091 $5,000
Tax refund
(45%)
$(4,091) $(4,091) $(4091) $-
Net cost $5,000 $5,000 $5,000 $5,000
Total amount accumulated after
20 years (6%)
$29,156 $29,156 $29,156 $16,036
Tax rate after retirement 35% 45% 55% 0%
Income taxes $(10,205) $(13,120) $(16,036) $-
Net funds available $18,951 $16,036 $13,120 $16,036

These examples and assumptions illustrate the possible advantages of these two products under specific conditions.

The information provided here should not be considered advice or notification. Clients should always have their adviser or tax specialist confirm the benefits of the solutions described. This information does not create any legal or contractual obligation for National Bank or its subsidiaries.

You would like to save up for a rainy day 
Investing in your TFSA is an excellent way to build an emergency fund. Since withdrawals3 are not taxable, the TFSA is a flexible tool for covering unforeseen expenses.

3Amounts withdrawn from your TFSA can be redeposited starting the following year.
You would like to save in order to buy a home
If you are thinking about buying your first home, combine the advantages of both investment solutions and contribute to both an RRSP and a TFSA!

Start by setting aside funds in your TFSA, and then use money from your TFSA to contribute to your RRSP. 90 Days after you've made your first RRSP contributions4 you'll be eligible for the Home Buyers' Plan (HBP)5. You and your spouse can each withdraw up to $25,000 from your RRSPs without having to pay any income tax on those withdrawals.

You would like to buy a home but it wouldn’t be your first
If you do not qualify for the Home Buyers' Plan (i.e., you’re not buying your first home), the TFSA is still an excellent way to save up for your home purchase. You can set aside funds in a tax free environment and then withdraw them once you find the home of your dreams!

4 Your RRSP contributions must remain in your RRSP for at least 90 days before they can be withdrawn under the Home Buyers’ Plan.
5 To be eligible for the HBP, the home must be located in Canada, purchased or built before October 1 of the calendar year following the RRSP withdrawal and serve as the buyer’s principal residence within a year of being purchased or built. You and your spouse can each withdraw up to $25,000 from your RRSPs. You have 15 years, as of the second calendar year after the withdrawal, to put those amounts back into your RRSPs. Your annual repayment must be equal to 1/15 of the total amounts withdrawn.
You are eligible for government benefits and you’d like to minimize the impact of your investment income on your benefits
The income earned in your TFSA and the withdrawals made from your TFSA do not affect your eligibility for income-tested government benefits or credits such as the Guaranteed Income Supplement (GIS), Old Age Security pension (OAS) or employment insurance.

In other words, regardless of how much your TFSA generates or how much you withdraw, you will receive the same benefits that you would if you had not contributed to a TFSA.
You have already made the maximum contribution to your RRSP
By putting your additional savings into a TFSA, you can ensure that your investment income will not be taxed.
You are already retired
If you have surplus savings after you retire, any amounts that you don’t need at the current time can be invested in a TFSA. The income generated by your surplus savings will be tax free.

In addition, the income earned in your TFSA and the withdrawals made from your TFSA will not affect your eligibility for income-tested government benefits and credits such as the Guaranteed Income Supplement (GIS) or Old Age Security pension (OAS).

You are over 71 years of age and your spouse is not younger than you
There is no age limit for a TFSA, which means that, unlike an RRSP, you can always continue to build up your savings.

View 3 possible retirement scenarios
  • Lucy is planning to retire at age 65.
  • She has $110,000 in RRSP savings.
  • She receives $500 a month in CPP benefits, plus OAS and GIS.
  • Her cost of living is $19,750 (annually).
  • Her investments show a 6% return.
For Lucy’s RRSP strategy to be as effective as investing in a TFSA, she would have to reduce her cost of living from $19,750 to $18,150.


Analysis of 3 scenarios

Keep her RRSP*
If Lucy keeps her RRSP with the above conditions, the funds in her RRSP will be used up by the time she is 79.


Cash in her RRSP over 3 years and deposit her savings in a non-registered account*
If Lucy cashes in her RRSP over a 3-year period and places the funds in a non-registered account, her funds will last until she is 88.


Cash in her RRSP over 3 years and use the TFSA*
If Lucy cashes in her RRSP over a 3-year period and deposits her savings in a non-registered account and a TFSA as her contribution room allows, her funds will last until she is 100.

* The data presented in these graphs is hypothetical. The calculations are provided for information purposes only to illustrate the advantages that could be gained from using a TFSA in identical conditions.


1 Other than trusts