OTTAWA (ON), November 16, 2021 /CNW/ – November is Financial Literacy Month in Canada. Financial literacy means having the knowledge, skills and confidence to make responsible financial decisions at any stage of your life. The Canada Revenue Agency (CRA) recognizes the importance of giving Canadians the information and tools they need to make smart financial decisions and is proud to support Financial Literacy Month.
Developing your financial literacy allows you to unlock your financial power – find out how you can get started and get the most out of a Tax-Free Savings Account (TFSA) with your bank, credit union, brokerage or company. local insurance.
What is a TFSA?
The Tax-Free Savings Account (TFSA) was launched by the Government of Canada in 2009 to help Canadians save and invest their money – tax-free – throughout their lives. This savings vehicle lets you set aside money in a TFSA for any purpose – whether you’re saving for education, retirement, a home, or just for a bad day, earnings in your TFSA generally will not be taxed. You control your TFSA, so you can contribute and withdraw funds whenever you want without penalty. However, contributions can only be made if there is available contribution room.
The TFSA isn’t just for saving. You can also use it to hold and grow a variety of investments, including exchange-traded funds, stocks, bonds, and GICs.
Who is eligible for the TFSA?
the eligibility criteria is simple: any Canadian resident who has reached the age of majority in their province or territory and who has a valid social insurance number (SIN) can open a TFSA. All Canadian residents who meet these criteria for tax purposes can open a TFSA.
In most provinces, once you turn 18, you can open and contribute to your TFSA according to the this year’s dollar limit. In provinces and territories where the legal age is 19, you can still accumulate contribution room when you turn 18, but you will have to wait another year before you can contribute; this contribution room will be carried over to the following year.
How to open a TFSA
To get started with a TFSA, contact your financial institution, credit union or insurance company.
Contributions to your TFSA
Your contribution room determines the maximum amount you can contribute to your TFSA.
The annual contribution limit for 2021 is $6,000. TFSA contribution room accumulates each year – either from 2009 or the year the person turns 18 and is a resident of Canada for tax purposes. Contribution limits from previous years are included in your contribution room, even if you have not opened or contributed to a TFSA.
Example 1: Josie opened her TFSA in 2020 on her 18thand birthday. The contribution limit for that year was $6,000and she put $2,000 in his TFSA. In 2021, the contribution ceiling was $6,000. This means that on January 1, 2021Josie had $10,000 contribution room available for the year ($4,000 unused contribution room from 2020 + 2021 contribution limit of $6,000).
It is important to track your annual TFSA contributions, as withdrawals are only added to your contribution room. the next year.
Example 2: Dalir opened his TFSA in 2020, the same year he turned 18. The contribution limit for this year was $6,000and he put $6,000 in his TFSA in January. Dalir had an unexpected expense and retired $6,000 in March. By August, Dalir had since saved up enough money and decided to put the $6,000 he had taken earlier in the year. Dalir is now considered to have overcontributed to his TFSA because he exceeded his annual TFSA limit by $6,000 because his net TFSA contributions for the year 2020 are $12,000 ($6,000 in January and $6,000 in August).
To view your TFSA transaction summary online, register or log in to My account.
Quick tips for managing your TFSA
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Start small. A little goes a long way. Contributing small amounts regularly can help your TFSA grow over time. For example, to maximize your contribution in 2021, you will need to set aside $115 per week, or $16 per day.
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Know your own contribution margin. Your contribution room may not be the same as that of your family or friends. If you contribute regularly to your TFSA, you can find your most up-to-date contribution room through online services such as My account and the MyCRA mobile app.
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Track your TFSA transactions. Keeping records of your contributions and withdrawals will help you determine how much contribution room you have left in your account, so you don’t risk an over-contribution.
Quick facts about non-Canadian residency
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If you make a contribution as a non-resident, you will be subject to a 1% tax for each month the contribution remains in the account. For more information, see Tax payable on non-resident contributions.
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If you become a non-resident of Canadaor are considered a non-resident for income tax purposes, you will be allowed to keep your TFSA and you will not be taxed Canada income from the account or withdrawals from it. For more information, see Non-residents of Canada.
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SOURCE Canada Revenue Agency
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