Excerpt from the Government of Canada Budget Presentation.
How the Tax-Free Savings Account Will Work
- Starting in 2009, Canadian residents age 18 or older will be eligible to contribute up to $5,000 annually to a TFSA, with unused room being carried forward.
- Contributions will not be deductible.
- Capital gains and other investment income earned in a TFSA will not be taxed.
- Withdrawals will be tax-free.
- Neither income earned within a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits.
- Withdrawals will create contribution room for future savings.
- Contributions to a spouse’s or common-law partner’s TFSA will be allowed, and TFSA assets will be transferable to the TFSA of a spouse or common-law partner upon death.
- Qualified investments include all arm’s-length Registered Retirement Savings Plan (RRSP) qualified investments.
- The $5,000 annual contribution limit will be indexed to inflation in $500 increments.
For more information on the Tax-Free Savings Account, see our TFSA Questions and Answers, or search TFSA in the search bar on the right.
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- Understanding TFSA Contribution Room
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- TFSA Over Contributions
- TFSA Questions And Answers
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What are qualified investments
What are non-qualified investments
In a general sense, qualified investments include, cash, shares traded on a Canadian stock exchange, shares traded on a prescribed foreign stock exchange, Canadian mutual funds, debts (bonds) of a public Canadian corporation, and GICs. This list is not exhaustive and you should refer to the CRA’s IT 230R3 for more information
http://www.cra-arc.gc.ca/E/pub/tp/it320r3/it320r3-e.html