Happy 10th Anniversary TFSA

Peter Katevatis - Jan 22, 2019
Are you using the TFSA to it’s full potential?
Katevatis Wealth Management - Canaccord Genuity Corp

In 2009, the Canadian government introduced a new type of account called the Tax Free Savings Account (TFSA).  It allowed Canadians to invest for whatever purpose they wanted in a flexible structure that did not punish you for accessing your own money.  It was born out of the financial crisis as the government wanted to empower Canadians to save for themselves, so the future burden was less likely to fall on the government.

 

We have had the Registered Retirement Savings Plans (RRSP) since 1968 but it fails some investors in many ways.  Most importantly it is not a savings account if you plan to access the funds before retirement.  The short term tax benefit of the RRSP and the long term compounding tax free growth make it perfect for long term retirement planning.  However, if you might need the cash you are investing, a RRSP account is not the right place to do it.  Here are more details of TFSA vs RRSP.

 

TFSA accounts allow investors a panacea of benefits, specifically: tax free growth and no penalty for taking your money out.  The catch (there’s always a catch) was that it was only for $5,000 per year with an inflation adjustment.  Inflation has adjusted the rate twice in $500 increments, so the new 2019 limit is $6,000.  Another main benefit is the accumulation of contribution limits and the addition of previous withdrawals.  Here are the annual limits from 2009:

 

 

Year

Limit

2009

$5,000

2010

$5,000

2011

$5,000

2012

$5,000

2013

$5,500

2014

$5,500

2015

$10,000

2016

2017

2018

2019

TOTAL

$5,500

$5,500

$5,500

$6,000

$63,500

 

2015 saw the introduction of a $10,000 limit which was a campaign move by Stephen Harper as he hoped voters would re-elect him on the basis of the success of the TFSA program.  Justin Trudeau campaigned on the basis that he would cancel this limit but once he took power and realized the logistical nightmare of canceling existing contributions, so in 2016 the limit reverted back to $5,500.

 

What makes the TFSA a true savings account is the fact that you can access your funds and get your contribution room back.  If you have maximized your TFSA contribution each year and you withdrew $2,000 last year, your 2019 contribution limit would be $8,000.  For more details on calculating your TFSA limit you can play with the TFSA Calculator but I recommend using the CRA website.

 

Having the ability to earn tax free gains is wonderful but any losses incurred are also tax free.  Feel free to contact me to see what a suitable investment would be for you considering your unique needs and investment risk tolerance.  Everyone is different so let’s chat about what would be right for you.