- If you have maximized your RRSP contributions, the TFSA gives you another way to shelter $5000 per year of your investments from taxes.

- TFSAs can be a great place to hold emergency funds as you can hold short-term interest bearing instruments in a tax-sheltered environment and enjoy tax-free interest income, in addition to being able to withdraw and re-contribute as needed.

- TFSAs enable you to gift $5000 per year to your spouse, partner or child (over age 18) without having to worry about attribution of income or capital gains

- If your income is under $40,000 and you expect it to increase over this amount in coming years, you would be better off contributing to a TFSA rather than an RRSP. You can then transfer your TFSA savings to your RRSP when you are in a higher tax bracket and take advantage of higher tax savings.

- If you are contributing $2500 per year to an RESP to save for your children’s education and taking advantage of the 20% Canada Education Savings Grant, then the best place to save an additional $5000 per year for this purpose would be a TFSA.

- If you are an aggressive investor and expect to have substantial capital gains on your stock or mutual fund investments in the future, you can shelter those gains from taxes by investing in those securities in a self-directed TFSA account.

- If you expect to be in a higher tax bracket during retirement than the one you are in during your working years (this is rare but could happen due to inheritance or other factors), you should maximize your TFSA contributions as withdrawals from a TFSA are not subject to tax, unlike RRSP and RRIF withdrawals that are fully taxable.

- TFSA proceeds are completely tax-free at death and no probate taxes will apply either in provinces like Ontario where a beneficiary designation is allowed. Therefore, a TFSA will allow you to minimize your estate taxes.

- If you are saving to purchase a second home or investment property and have already used the RRSP Home Buyers Plan, the TFSA will allow you to shelter the interest income from your savings from taxes and withdraw them tax free as well.

- If you are close to retirement with very modest savings in an RRSP and no company pension plan, you should consider channelling all your savings to a TFSA account as this will allow you to maximize the government benefits you will receive at retirement.

7 Comments for this entry

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