TFSA stands for Tax Free Savings Account.
The TFSA is a tax shelter devised in the 2008 Canadian Federal Budget and introduced January 2, 2009.
Think of the TFSA as a money shelter. Come January 1, 2010, you can sign up for a TFSA account, if you have’nt done so already. The TFSA will let you store $5,000 per year in the shelter.
Can you invest stocks, bonds and mutual funds in the TFSA?
Yes. You can invest in the following investment products with the TFSA.
– Bonds (Canadian Savings Bonds are a popular choice)
– Mutual Funds
– and more…
The taxman, the government, and the bank cannot touch your TFSA money or investments. No taxes will be deducted. No dividends will be deducted. No withdrawal will be charged.
If you make $10,000 from your first $5,000 TSFA investment, you are taxed $0 and left with the $10,000 gain. Outside the TFSA shelter, that $10,000 you make is taxed and a smaller $8,250* gain is left over.
Just to note, the TFSA contribution limit changes every year subject to inflation.