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I s s u e 4 2 – J u l y 2 0 1 7

B Y T H E C O R P O R A T E C O N C E P T G R O U P

F O R E S I G H T

The Tax-Free Savings Account (TFSA) came into effect on January 1, 2009.

Many people have misconceptions about TFSAs and how they work. After

reading this article, you will have a clear sense of what a TFSA is and how

you can use it effectively. A TFSA is available to Canadian residents 18

Tax Free Savings Accounts: The Facts

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years of age or older. It provides tax free growth while money is inside the account and any withdrawals from a TFSA are not taxed. The holdings of a TFSA are not limited to Cash type investments. Eligible

investments include cash, mutual funds, stocks, GICs, bonds, and certain shares of small business corporations.

Contribution Room Withdrawals

TFSA vs RRSP

As income is typically higher during our working years than it is in retirement, an RRSP is likely the better choice until you have maximized your contribution room. If your income does happen to be lower in your working years than in retirement, the TFSA may be the better choice. Often, using both RRSPs and TFSAs as part of an investment portfolio makes sense.

A TFSA can be an important component of one’s overall Financial Plan. It is not merely a savings account to accumulate short-term cash savings. How and when a TFSA is used depends on your circumstances. If you have any questions about how a TFSA can be incorporated into your Financial Plan do not hesitate to contact us.

There are no income requirements to accumulate contribution room and any unused contribution room is carried forward indefinitely.

Withdrawals can occur at any time on a tax-free basis. There is one very important consideration, however: Once you have contributed the maximum amount to your TFSA and then withdraw from your account, you cannot deposit that amount back into the account in the same year or you will have been deemed to have made an overcontribution. You must wait until the following year to contribute that amount of money back into the account.

If you withdraw money from a TFSA, the amount you withdraw, becomes added to your contribution room the following calendar year (i.e. if you withdraw $10,000 in 2017, $10,000 of contribution room is added back in 2018).

The withdrawal and subsequent contribution in the same year is what most often puts people in a position where they have over-contributed to their TFSA. If you exceed your limit, you will be charged a penalty of 1% per month on the amount in your TFSA that above the limit.

A question often asked is which is better, a TFSA or RRSP. The main difference between a TFSA and an RRSP is that you get no tax deduction for a contribution to a TFSA whereas a contribution to an RRSP provides you with a tax deduction. Although the perceived benefit of receiving a tax refund for an RRSP contribution may feel good, it does not necessarily mean an RRSP is better than a TFSA.

If your income is the same during your working years versus your retirement years, the TFSA and RRSP are virtually the same. The chart, After-tax Cash in TFSA & RRSP illustrates that scenario.

Tax Free Savings Accounts: The Facts

- Scott Goddard

Moving forward, the annual limit will be indexed to inflation and rounded to the earest $500.

Source: Financial Post

• For 2009, 2010, 2011 and 2012 was $5,000.

• For 2013 and 2014 was $5,500.

• For 2015 was $10,000.

• For 2016 was $5,500.

• For 2017 is $5,500.

After-Tax cash in TFSA & RRSPTFSA RRSP

Pre-tax income $5,000 $5,000

Tax (40%) (2,000) n/a

Net contribution 3,000 5,000

Growth at 5% / 20 years 7,960 13,266

Tax upon withdrawal (40%) - (5,306)

Net cash $7.960 $7.960

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1. You make a lump sum or monthly contribution for which you receive a charitable donation tax receipt.

2. Each year you can allocate between 4-8% of the account value to any registered Canadian charity.

3. The growth on the donation stays within the account and you don’t pay any tax on the growth.

4. Upon death you can name a successor.

Charitable Giving

John and Kathy Sample came into the office for their annual review meeting. We talked about their adult children.

Jackie had her first child and Jimmy was going to get married next year. John and Kathy have been enjoying their “retirement”. They were both still doing some consulting, but were spending the winters in Florida. We reviewed their financial plan. Their portfolio had grown

to the point that they had more than enough to support their lifestyle and also provide a legacy to their children and grandchildren(s). During the meeting Kathy brought up her support of Covenant House. Kathy does some volunteer work for them and she also donates $5,000 each year. She said that she had been supporting this charity for the last 5 years and would continue to do so in the future. I explained that there was a way that she could make her financial donations more efficiently and she was interested in finding out more about this option.

Helping You Achieve The Future You Deserve

DirectionsLocated in the Morneau Sheppell Centre, Building Two. Turn east onto Green Belt Drive off of Don Mills Road.

It is the first entrance on your right. Follow the signs to the visitors parking.

Financial Planners

Russell Nagano B.Comm, CLU, CFP

r.nagano@ccgpwm.com

Scott Goddard Hons.B.A., CFP

s.goddard@ccgpwm.com

CCG Personal Wealth Management895 Don Mills RoadBuilding Two, Suite 802Toronto, ON M3C 1W3p. 416.498.5550 f. 416.498.5188

www.ccgpwm.com

Mutual Funds Provided Through FundEX Investments Inc.

After discussing the pros and cons with Kathy she decided that she wanted to have it set up. This is how we did it:

Kathy liked the idea that once the account was transferred to her son and daughter on death, they could choose the charity that would be supported by the annual grant.

Three years after setting up the charitable giving account, Kathy said that she was very happy with her decision. It allowed her to have increasing financial support of Covenant House, as her account value increased. She also appreciated the legacy value of being able to have her children continue to support a Canadian charity.

- Russell Nagano

1. Kathy contributed $100,000 to the charitable giving fund.

2. Each year she plans on allocating $5,000 to Covenant House.

3. She named her son and daughter as the successors. This allows the charity to have continued support once the initial donor dies.

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