The Tax Free Savings Account was first introduced in the 2008 Budget. It is still a big mystery to a lot of people and needs a lot of clarification.
A Tax Free Savings Account is a flexible, registered, general purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet their lifetime savings needs.
In order to contribute to a TFSA, the contributor must be a Canadian resident and age 18 and older. The investment income that is earned is tax free and the withdrawals are also tax free. Any of the unused contribution roon is carried forward and accumulated in future years. The full amount of the withdrawals can be put back into the TFSA in future years. If you recontribute in the same year, it may result in an over-contribution amount which could be subject to a penalty tax.
A TFSA is more than just a basic bank account. There are a wide variety of investment options such as Mutual Funds and GICs. It is wise to confer with your Financial Planner to see what investment option is right for you.
Any contribution that is made to the TFSA is not tax-deductible. Neither the income earned within a TFSA nor the withdrawals from it affect eligibility for federal income tested benefits and credits such as Old Age Security, Guaranteed Income Supplement, and Child Tax Benefit.
You can give funds to your spouse or common-law partner for them to invest in their TFSA. Any assets in the TFSA can generally be transferred to a spouse or common-law partner upon death.