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By: Jeffrey Spitzer

Starting in 2009, Canadian residents who are 18 years of age or older will be able to earn tax-free investment income within a Tax-Free Savings Account (TFSA) during their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Also, interest on money borrowed to invest in a TFSA is not tax deductible. However, the income generated in such an account (for example, investment income and capital gains) is tax-free, even when it is withdrawn. The TFSA dollar limit is $5,000 in 2009, and will be indexed to inflation and rounded to the nearest $500 in later years. Unused TFSA contribution room can be carried forward to later years. The total of TFSA withdrawals in a calendar year is added to the TFSA contribution room for the next calendar year.Tax-Free Money for What Matters to You Canadians need to save for many different purposes over their lifetimes. Reducing taxes on savings can help. Thats why the Government has introduced a new Tax-FreeSavings Account (TFSA). Its the single most important personal savings vehicle since the introduction ofthe Registered Retirement Savings Plan (RRSP). The TFSA will allow Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used to purchase a new car, renovate ahouse, start a small business or take a family vacation. Canadians from all income levels and all walks of life canbenefit. How Is a TFSA Different From a Registered Retirement Savings Plan? An RRSP is primarily intended for retirement. The TFSA islike an RRSP for everything else in your life . Both plans offer tax advantages, but they have keydifferences. Contributions to an RRSP are deductible and reduce your income for tax purposes. In contrast, your TFSA savings will not be deductible.Withdrawals from an RRSP are added to your income and taxed at current rates. Your TFSA withdrawals and growth within your account will notthey will be tax-free.An Effective Vehicle for Your Lifetime Savings NeedsRobert withdraws $20,000 tax-free from his TFSAtorenovate his home. Robert will be able to re-contribute the $20,000 to his TFSA in the future without affecting his other available contribution room. Had he used his RRSP savings, he would haveneeded to withdraw up to $37,000 to pay taxesand cover the cost of the renovation, and thiscontribution room would have been lost. A Flexible Account for aLifetimeofSavings Not everyone is able to save each and every year. Those who cannot contribute $5,000 in a given year will beable to carry forward their unused contribution room tofuture years. In addition, Canadians may want to use their savingstobuy a new car or a cottage, or start a small businessandthe full amount of withdrawals can be put back into theTFSA in the future. Couples often save and plan together, so Canadians can contribute to their spouses or common-law partners TFSA, depending on the spouses or partners available room. Benefits for Seniors The TFSA will also provide seniors with a tax-free savings vehicle to meet ongoing savings needs, something they have only limited access to once they reach age 71 and are required to begin drawing down their registered retirement savings. Seniors are expected to receive one-half of the total benefits provided by the TFSA. No Impact on Income-Tested Benefits Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested benefits and credits, such as the Guaranteed Income Supplement and the Canada Child Tax Benefit. This will improve incentives for people with low and modest incomes to save. It is estimated that, in the first five years, over 75per cent ofthe benefits of TFSA savings will go to individuals in the two lowest income tax brackets.

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Contributions to a TFSA will not be deductible for income tax purposes but investment income, including capital gains, earned in a TFSA will not be taxed, even when withdrawn.

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