Tax-Free Savings Account or TFSA is an account that comes with tax benefits. Any individual aged 18 years and above who stays in Canada is eligible for this particular TFSA. In some provinces, the minimum age for individuals to be able to open an account is minimum 19 years.
As the name suggests, a Tax-Free Savings Account is tax free. There are no taxes levied on the interest earned, dividends or capital gains. Explaining the benefitof a TFSA in a nutshell, all your investments become tax-free along with the amount withdrawn. You even get an option of depositing the withdrawn money back into the TFSA, preferably the following year. Know that if you fail to deposit the premium in TFSA during a year for some reason, you may very well do so the following year where the deposited amount is added to its contribution limit. Also, any withdrawals made in the calendar year will create additional contributions to the following year.
For a person who is not a resident of Canada nor does wish to become one for income tax purposes, TFSA is still an option for him as he is permitted to hold a valid SIN. But in all sense, the individual is expected to contribute 1% tax every month till the account is operative.
It is important to know that TFSA contributions room has
- Any untouched TFSA contribution room from the previous year.
- The TFSA dollar limit plus inflation indexation.
- Any withdrawal made in the previous year from the TFSA.
What happens in case of over contribution?
One should remember that for any over-contribution made to TFSA that surpasses the maximum allowable amount, the person is penalised and is supposed to give 1% per month over the excess contribution until it is withdrawn from the account.
To have a TFSA, an individual should
- Be 18 years of age or older.
- Have a valid Social Insurance Number or SIN.
TFSA story after the Holder’s death
The below mentioned factors would determine the possible implications that may vary after the demise of the holder
- The type of the holder’s beneficiary/beneficiaries.
- The particular type of TFSA he had to his name.
- Whether there was any income earned after the the holder’s demise.
- The earlier amounts distributed to beneficiaries after the number of days following the date of death.
- In what ways the earned income was reported and taxed after the date of death of the holder.
- Whether the savings account continues to exist or is considered to have ceased after the holder’s death.
- Whether a beneficiary is allowed to contribute the amounts received to their own TFSA, within permissible limits, and whether this step would affect their unutilised TFSA contribution room.