THE TFSAA practical addition to your client’s savings portfolio

Advisor’s document

2 TFSA

THE TAX-FREE SAVINGS ACCOUNT (TFSA)The Tax-Free Savings Account (TFSA) is probably the single most important savings vehicle innovation since the introduction of the Registered Retirement Savings Plan (RRSP). TFSAs combine the flexibility of non-registered investments with some of the tax advantages of registered plans.

Although TFSA rules are fairly straightforward, it may not be readily apparent which is more advantageous and when… an RRSP or a TFSA? This brochure is intended to help you to understand which of your clients could benefit most from integrating a TFSA into their financial investment strategy.

TFSA KEY FEATURES TFSAs are suitable for both retirement and other types of savings projects. Withdrawals can be made at any time without

restriction.* All Canadian residents who are at least 18 years old are eligible to contribute to a TFSA, whether they are earning a salary

or not. The annual contribution limit is the same for everyone ($5,500 in 2013). Unused contribution room from previous years increases the contribution limit, as is the case with RRSPs. Amounts withdrawn from a TFSA are added to the contribution limit for the following year. Withdrawals are not included in taxable income and capital gains and other investment income earned in a TFSA are

tax-free. Withdrawals do not affect eligibility for federal income-tested benefits and tax credits. Contributions are not deductible from taxable income.

* Subject to redemption fees, where applicable.

The TFSA is suitable for a broad range of investors – and definitely worth considering when providing clients with financial advice!

3TFSA

TFSA OR RRSP?In some ways, the TFSA mirrors the RRSP as both provide investors with tax advantages. Like RRSPs, there is an annual contribution limit for TFSAs, but the contributions are not deductible. Unlike RRSPs, the contributions and income that accumulate in a TFSA are not taxable on withdrawal. A TFSA therefore lets you grow tax-free investment income (i.e., interest, dividends and capital gains) earned on the contributions made using already taxed income.

Both of these financial vehicles offer tax relief, however there are some key differences. A good way to understand these is to compare them. The table below presents the main characteristics of each. The section following the table provides more detailed information about TFSAs.

Features TFSA RRSP

Clientele

Target clientele

For individuals from all income levels, in particular: young adults saving for a special project; individuals having reached RRSP contribution limits who are seeking an alternative tax-sheltered savings vehicle; and retirees who don’t need all of the retirement income they are required to withdraw; etc.

The RRSP was designed primarily for clients who want to put savings away for retirement.

EligibilityCanadian residents who are at least age 18, whether earning a salary or not.

Canadian residents earning a salary.

Contribution room

TFSA dollar limit$5,500 in 2013 (this limit is indexed annually and rounded off to the nearest $500).

Based on earned income (18%), less pension adjustment as applicable (maximum $23,820 in 2013).

Unused contribution room can be carried forward indefinitely

Yes Yes

Withdrawals can be recontributedYes, as of the year after the withdrawals were made.

No

Possible to have more than one plan in different financial institutions provided that the contribution limit is not exceeded

Yes Yes

Excess contributions Taxed at 1% per month.Taxed at 1% per month ($2,000 overcontribution cushion).

Investments

Investments allowed GIAs, funds, bonds, stocks, etc. GIAs, funds, bonds, stocks, etc.

Tax considerations

Contributions deductible from taxable income

No Yes

Investment income is taxable No No

Withdrawals are taxable No Yes

Effect on income-tested government benefits or credits

NoneYes, government benefits are affected by withdrawals.

Spousal plans

Contributions to spousal plans An individual may give money to his/her spouse to enable the spouse to contribute to a TFSA.

Contributions made to a spousal plan affect the contribution ceiling of the payer.

Notes: Combined federal and provincial tax savings based on a $200 monthly contribution for 20 years and a 5.5 per cent rate of return. For unregistered savings, a 21 per cent average tax rate on investment income is assumed (based on 40 per cent interest. 30 per cent dividends and 30 per cent capital gains, and a middle-income earning account holder).

This example was taken from the Government of Canada Web site. You can find it by visiting www.tfsa.gc.ca.

4 TFSA

Features TFSA RRSP

Loans

Plan can be used as collateral for loans

Yes* No

Interest on loans is deductible No No

Death and divorce

In the event of death

No tax impact if the spouse or common-law partner is designated as the sole beneficiary as he/she becomes the successor holder.

Amounts may be transferred to the surviving spouse’s RRSP with no tax impact.

In the event of divorce or separation

Amounts may be transferred to the ex-spouse with no tax impact (no tax payable and no impact on ex-spouse’s contribution limit). In this case, the transfer does not reinstate the transferor’s contribution room.

Amounts may be transferred to the ex-spouse’s RRSP with no tax impact.

Beneficiary may be designated under an annuity contract

Yes Yes

*Subject to SSQ approval.

GENERAL INFORMATION ABOUT TFSAs

Target Clientele

Many types of clients will be interested by the advantages offered by TFSAs. A case-by-case analysis should be carried out to determine whether a client would be better off contributing to an RRSP, opening a TFSA or paying off debt.

Savings for short- or medium-term projectsBecause the TFSA is so flexible in terms of withdrawals and how amounts accumulated in the account can be used, individuals who want to save for a special project (a trip, new car, renovations or down payment on a home) would be wise to opt for a TFSA rather than a traditional non-registered savings plan because the returns are tax-free and available when they need them.

For example, an individual contributing $200 a month to a TFSA for 20 years (assuming an average annual return of 5.5 percent) will accumulate about $11,045 more in savings than if the investment had been made in a taxable savings vehicle.

Investors who have contributed to a non-registered plan in the past could consider transferring these funds to a TFSA. They could begin by transferring relatively high-interest products such as guaranteed interest accounts (GIAs) as the interest income earned on these products is 100% taxable. Please note, however, that there will be a tax impact when funds from a non-registered plan are transferred to a TFSA. Individual client needs must be assessed carefully.

$28,480

$48,000

Tax savings $11,045

TFSA Versus Unregistered Savings

Investment income

Tax savings TFSA

Contributions

$39,525

$48,000

Notes: Combined federal and provincial tax savings based on a $200 monthly contribution for 20 years and a 5.5 per cent rate of return. For unregistered savings, a 21 per cent average tax rate on investment income is assumed (based on 40 per cent interest. 30 per cent dividends and 30 per cent capital gains, and a middle-income earning account holder).

This example was taken from the Government of Canada Web site. You can find it by visiting www.tfsa.gc.ca.

5TFSA

Retirement savings for low-income earners A TFSA may be more advantageous than an RRSP if it is anticipated that the income tax rate will be higher upon retirement than at the time the contributions were made. This may apply to some young adults in very low income tax brackets or to low-income earners. Contributions can be transferred to an RRSP at a later date, resulting in a potentially substantial tax refund.

A word of caution, however. Because the TFSA has a very flexible withdrawal provision, clients may be tempted to make withdrawals before they retire. From this point of view, an RRSP may be a better choice for clients who really want to save for their retirement given the stricter withdrawal constraints.

Additional retirement savings for clients with deeper pockets Investors who have already used up all of their RRSP contribution room can use the TFSA as an alternative retirement savings vehicle – and enjoy the advantage of their investment income being tax-free.

Advantages for retireesRetirees who are required to make RRIF withdrawals, even when they may not necessarily need this income, can reinvest this money into a TFSA. The same applies if they wish to set aside money which can be transferred to their spouse with no tax impact upon death.

Spouses wishing to share savings Since attribution rules do not apply to TFSAs, an individual can give money to a spouse, and the spouse can then invest this money in a TFSA, with no impact on the contributing spouse’s contribution room limit. In the event of the spouse’s death, the same individual can then recover the assets in the TFSA.

Eligibility

Since 2009, all Canadian residents who are at least 18 years old and who have a valid Social Insurance Number (SIN) can open a TFSA, whether or not they have earned an income.

Unlike RRSP contributions, TFSA contributions can be made after age 71.

If an individual becomes a non-resident of Canada, he/she will be allowed to keep the TFSA and will not be taxed on any earnings in the account. However, contributions can no longer be made and no TFSA contribution room will accrue for any year of non-residency. Any withdrawals made during the non-resident period will be added back to the unused contribution room in the following year, however contributions can only be made if residency status is resumed in Canada.

Contribution Limit

The annual TFSA contribution limit does not depend on an individual’s income. This limit is set every year by the federal government and applies to all eligible individuals. In 2013, the contribution limit is $5,500, and is indexed annually and rounded off to the nearest $500.

The individual contribution limit is increased by any unused contribution room from the previous year, as is also the case with RRSPs. For example, if you contributed $3,000 to a TFSA in 2009, you were able to contribute up to $7,000 in 2010 (i.e. $5,000 for 2010 plus $2,000 in unused contributions from 2009). These amounts can be carried forward indefinitely.

In addition, if you withdrew $2,500 from a TFSA in 2010 after contributing $3,000 in 2009, you will be able to contribute up to $25,000 in 2013. This unique provision makes the TFSA highly advantageous as investment returns can be withdrawn and then put back into the TFSA at a later date. For example, if an initial $5,000 investment grows over time to $7,500, the entire amount may be withdrawn and then contributed again at a later date. However, individuals must wait until the following year before they can recontribute the amount withdrawn.

The contribution limit applies to all of the TFSAs an individual may have in different financial institutions. Canadian residents are informed of their annual contribution limit after filing their tax returns. Please note that overcontributions are subject to a monthly penalty of 1% on the excess amount contributed.

Although the annual contribution limit may seem relatively low, the TFSA has the potential to generate significant investment savings within only a few years.

6 TFSA

Typical Scenario (without taking into account indexing)

YearContribution limit

for current year A

Contributions during the year

B

Withdrawals during the year

C

Carried forward to the following year

A – B + C2009 $5,000 $3,000 $0 $2,000

2010 $7,000 $0 $2,500 $9,500

2011 $14,500 $5,000 $5,000 $14,500

2012 $19,500 $0 $0 $19,500

2013 $25,000 $0 $0 $25,000

Investments

All SSQ financial products are eligible for TFSAs: all types of GIAs, all ASTRA Funds, etc. The payment of income option is available, as is the simple interest option for GIAs. The redemption fee exemption that applies to RRSPs, LIRAs and NRSPs also applies to TFSAs. In addition, a TFSA may be opened as part of a group plan or as an individual account.

Tax Considerations

One huge advantage for TFSA holders is that they can accumulate investment income tax-free. This means that no tax slips are issued for any type of investment income (capital gains, interest, dividends, etc.) and clients are not required to declare this income on their tax return. This also means that TFSA clients will be able to obtain the maximum benefit from their investment income. However, capital losses are not deductible from taxable income.

Withdrawal amounts are not included as taxable income and therefore in this sense are tax-free. In addition, contributions are not deductible from taxable income.

Another big advantage of TFSAs is that withdrawals will not affect income-tested benefits or tax credits, including the following:

Age Credit

Guaranteed Income Supplement

Old Age Security

Canada Child Tax Benefit

Goods and services tax (GST) Credit

Employment Insurance

Since amounts withdrawn from RRSPs reduce an individual’s eligibility for certain government benefits and credits, low-income earners who depend on these benefits should opt for a TFSA since any withdrawals will not affect benefits they may depend on to cover their living expenses.

Spousal Plans

Strictly speaking, TFSA rules do not provide for the creation of a “spousal plan” that specifies the names of the planholder and the contributor. However, a TFSA can still be used to enable a spouse who has little or no income to save money tax-free. Since the attribution rules do not apply to TFSAs, an individual may give money to a spouse, who may then invest this amount in a TFSA – without affecting the contributing spouse’s contribution limit. In this sense, the annual TFSA contribution limit is $11,000 per couple.

Loans

As with RRSPs, the interest on loans taken out to invest in a TFSA cannot be deducted from taxable income. For that reason, taking out an investment loan to invest in a TFSA is not really advantageous. However, TFSAs can be used as collateral for a loan taken out for other purposes, subject to the approval of SSQ.

7TFSA

In the Event of Death

In the event of death, the value of the assets accumulated in the TFSA is payable tax-free to the designated beneficiary or the estate.

The investment income in the TFSA becomes taxable following the death of the TFSA holder, while the income accumulated prior to the planholder’s death remains exempt from income tax. Therefore, the estate will be required to declare the investment income, where applicable.

However, if the spouse or common-law partner is the sole designated beneficiary under the contract, he/she would be considered the successor holder and the TFSA remains 100% non-taxable.

In the Event of Divorce or Separation

In the event of divorce or separation, amounts may be transferred directly from an individual’s TFSA to the TFSA of the ex-spouse or ex-common-law partner. In this case, the transfer does not reinstate the transferor’s contribution room and is not counted against the transferee’s contribution room.

The information contained in this guide was valid at the date of publication based on information provided by the Canada Revenue Agency (CRA). However, this document does not constitute a legal opinion.

If you have clients that are interested in investing in a TFSA, please use the following forms. 

For our regular individual products: FRA1251 Form For group plans: FRA1252 Form*

* Available in PDF format only on our Web site. Return the original to us and keep a copy for your records.

TFSAAPPLICATION FORM FOR INDIVIDUAL CONTRACTSASTRA Segregated FundsSSQ Guaranteed Investments (GIAs and Laddered GIAs)ASTRA Equity GIAs

For the following plan:∫ For the SSQ Tax-Free Savings Account - SSQ TFSA

1 0 Group No. Group/Plan Name

Name of Employer or Association

1. Member Information The annuitant is the same person as the member. The annuitant must obligatorily be a physical person aged 18 or over.

Employee No.

Last Name First Name Social Insurance Number

A A A A M M J J

Address (No.) Street Apt. Date of Birth

Town/City Province Postal Code

Gender: Female MaleTelephone (home) Telephone (office) Extension E-mail Language Preference: French English

2. Beneficiary(ies) DesignationIn the event of my death, I hereby assign any death benefit payable under the terms of my contract to the beneficiary(ies) mentioned below or, in the absence of a beneficiary designation, to my estate, subject to applicable legislation. If the spouse or common-law spouse is named as the sole beneficiary, the contract will be extended and the beneficiary will become the successor holder. In the absence of any choice, beneficiary designation is considered as revocable, except in Quebec, where the designation of spouse or common-law-partner as beneficiary is automatically irrevocable.

Last Name, First NameRelationship to Member

Revocable IrrevocableSharing

Ratio (%)Spouse*Common-law

SpouseOther

* The married or civil-union spouse Civil union has the same effect as marriage when contracted openly before a competent officiant and registered with the Registrar of Civil Status.

If a beneficiary designation is irrevocable, the consent of the beneficiary must be obtained for any future modification to the designation and for any withdrawal, in part or in whole, of amounts related to the contract. If a minor child is designated as an irrevocable beneficiary, the irrevocable status of this designation cannot be modified until such time as the child becomes major and consents to change the beneficiary designation by signing the required form.

3. Investment Allocation for Payroll DeductionsIF YOUR GROUP IS RESPONSIBLE FOR DETERMINING ALLOCATIONS, DO NOT COMPLETE THIS SECTION AS INFORMATION WILL NOT BE CONSIDERED.

LIFE CYCLE PORTFOLIO (if offered by your group): Invest 100% of the allocations in Life Cycle Portfolio (Indicate the year)

OR

ASTRA FUNDS: GUARANTEED Interest Accounts (GIA):Fund No.

(see list of ASTRA funds)Abbr. Name

Allocation(%)

Term (1 to 120 months)

Interest Terms (S or C)

Allocation(%)

Redeemable (Y or N)

Income(R or P)

months

months

months

months

months

A) Sub-Total % + (B) Sub-Total % = Total (A) + (B) 100 %Please enter the codes of all of the investment funds you want to allocate contributions to (see list of ASTRA Funds). Indicate the percentage applicable to each segregated fund or GIA. The percentages per contribution category must add up to 100%.

Specify the term, interest option and indicate if you want the GIA to be redeemable or not.Interest Term Options: S = Simple; C = CompoundSimple interest option is only available for GIAs with a term greater than 12 months.Redeemable: Y = yes; N = no If no choice is indicated, the GIA will be “redeemable” and the interest term “compound” by default.For simple interest term option, specify if the income will be annually reinvested (R) or paid (P).

Lump-sum Contributions and Transfers from Another PlanIn the absence of investment instructions for lump-sum contributions and transfers, such contributions will be invested in accordance with the established investment allocation defined above.For preauthorized payments, complete the Automatic Periodic Transaction for Purchases form (FRA683).

4. Additional Instructions

5. Authorization

Membership Application Form for TFSA Group PlanSSQ, Life Insurance Company Inc., P.O. Box 10510, Station Sainte-Foy, Quebec QC G1V 0A3

PLEASE PRINT OUT 3 COPIES OF THE FORM: ONE FOR THE MEMBER, ONE FOR THE PLAN ADMINISTRATOR AND ONE FOR SSQ. THE COPY SENT TO SSQ MUST CONTAIN THE ORIGINAL SIGNATURES AND CONSTITUTES THE ORIGINAL APPLICATION FORM.

FRA1252A (2011-06)

SSQ FINANCIAL GROUP - CLIENT SERVICES: 1-800-265-9525

X

I authorize the above-mentioned employer or association to act as “agent” for the plan in accordance with the meaning under the applicable contract and I authorize my employer to deduct from my salary, where applicable, the prescribed contributions to the plan. This authorization remains valid until written revocation on my part.I acknowledge having read and understood the terms and conditions of the plan and I hereby apply for membership in the plan. Any information provided constitutes an affirmation of this on my part.I request that SSQ, Life Insurance Company Inc. file an election with the Minister of National Revenue to register the contract as a TFSA under section 146.2 of the Income Tax Act.

I acknowledge having read and understood the information provided to me concerning investment funds, the relative degree of risk, as well as the particular characteristics and advantages of each fund. I assume full responsibility for my investment choices. I recognize that certain ASTRA Funds have an inherently higher degree of risk any therefore may be subject to significant variations in returns over short-term periods. I understand that I must restrict my investments in these funds to a maximum of 5% of the total value of my portfolio.I authorize SSQ, Life Insurance Company Inc. to use the information contained in this application form for administrative purposes, with the exception of my social insurance number (SIN) wich may only be used for tax purposes. I also acknowledge having read the personal information protection notice on the back of this form, and I have kept a copy of this application duly signed.

A A A A M M J J Member’s Signature (mandatory) Date Issuer: René Hamel, Chief Executive Officer of SSQ Financial Group

Reserved for SSQ

Contract No.

1 0 -

MONTREAL SALES OFFICE1200 Papineau Ave, Suite 460 Montreal QC H2K 4R5Tel.: 514-521-7365 • 1-800-361-8100Fax: 1-866-606-2764

ONTARIO, WESTERN AND ATLANTIC REGIONAL SALES OFFICE110 Sheppard Ave East, Suite 500Toronto ON M2N 6Y8Tel.: 1-888-429-2543Fax: 416-928-8515

QUEBEC CITY SALES OFFICE1245 Chemin Sainte-Foy, Suite 210Quebec QC G1S 4P2Tel.: 1-888-900-3457Fax: 1-866-559-6871

CLIENT SERVICESP.O. Box 10510, Stn Sainte-FoyQuebec QC G1V 0A3Tel.: 1-800-320-4887Fax: 1-866-559-6871

ssqir@ssq.cawww.investment.ssq.ca

BRA1276A (2013-02)