Changes to Tax Free Savings Accounts

Canadians will get a little extra room to save money in their tax-free savings account (TFSA) this year, as the federal government increased the $5,000 annual contribution limit for inflation.

The built-in indexation for TFSAs kicked in for the first time in 2013, taking the maximum contribution to $5,500.

"Since our Conservative government introduced the TFSA in 2008, it has proven exceedingly popular and has been called the single most important personal savings vehicle since the introduction of the RRSP," Menzies told the Commons last November.

Since the Government made TFSAs available in 2009, Canadians have been able to earn tax-free investment income on contributions of up to $5,000 per year. All Canadians – from students to young families to seniors – can earn tax-free income through a range of investment products. TFSAs have become increasingly popular, with approximately 8.2 million Canadians having opened an account and roughly 2.5 million Canadians contributing the maximum amount in 2011.

Key features of the TFSA that make it a popular savings vehicle for Canadians include:

A TFSA is available to all Canadians, 18 years and older;

Any interest, dividends and capital gains earned in a TFSA are not subject to tax;

A TFSA allows you to invest in a number of types of investments, be it a high-interest savings account, mutual funds, guaranteed investment certificates, listed securities, or other types of qualified investment products;

Unused TFSA contribution room is carried forward and accumulates for future years;

Funds available in your TFSA can be withdrawn tax-free at any time for any purpose. You can re-contribute withdrawn amounts in the same year only if you have unused TFSA contribution room. Otherwise, you have to wait until the following year.