Thursday, April 23, 2015

The 2015 Budget: Tax Free Savings Accounts

The 2015 Budget gives with one hand and takes with the other.  As of January 1, 2015, Canadians can transfer up to $10,000 per year into a Tax-Free Savings Account (TFSA).  The pre-budget limit was $5,500 per year.

While this is good news in the short term, the TFSA contribution limit will no longer be indexed to inflation.  This means that the contribution limit will be capped at $10,000 per year until some future legislative change.

It still makes sense to contribute to a TFSA each year.  While contributions are not tax-deductible, income and capital gains earned inside a TFSA are tax-free (even when withdrawn from the TFSA).  Even if the annual limit is capped at $10,000, you can have an additional $10,000 per year earning a tax-free return.  Over 10 years, that means $100,000 in capital earning a tax-free return.  Bit by bit builds up over time.

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The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.