Business | Fall 2008
Try this new way to save.
By Joy Gregory
Reduce your tax exposure while putting money aside for a rainy day
Fallout from the global credit crisis has a lot of Canadians talking about money in general and their savings in particular.
With the public's new-found appreciation of the difference between credit and money in the bank, introduction of the federal Tax Free Savings Account (TFSA) couldn't be more timely.
This new savings vehicle offers an innovative way to put money aside for a rainy day, a special purpose or plain old financial peace of mind, says Grant Griffith, with Meyers Norris Penny.
The premise is simple. Starting in 2009, Canadians 18 years and older can contribute up to $5,000 a year to a TFSA as a way to accumulate tax-sheltered personal savings.
What you do with the money is up to you. Contributions are not deductible (as with RRSPs) but unused allocations can be carried forward, and capital gain and other investment income earned in a TFSA will not be taxed. Withdrawals are also tax free, and income earned within the TSFA won't affect your eligibility for federal income-tested benefits and credits.
Withdrawals also create room for increased future contributions.
According to a federal government website, an individual contribution of “$200 a month to a TFSA for 20 years will accumulate about $11,045 more in savings than if the investment had been made in a taxable savings vehicle.”
Griffith encourages farm families to talk to their business advisors about the long-term advantages. “There are no tax deductions with this product, but it's not about taxes; it's about savings. From that perspective, it's worthy of another look: it forces you to put money away and it is tax exempt upon withdrawal.”
