Getting The Most From Your TFSA Contributions
We often get questions about the TFSA at HarbourEdge: what is it, how does it work, and are HarbourEdge Mortgage Investment Corporation shares a TFSA-eligible investment? Since MIC shares are TFSA-eligible, we thought a quick run-down on the TFSA would be helpful. A good proportion of our investors have TFSA investments, and so they should.
The Tax-Free Savings Account (TFSA) is a registered savings vehicle that first became available in 2009. It enables Canadians to earn investment income tax-free. Investment income earning in a TFSA is not subject to taxation, so the TFSA is ideally suited to high interest investments.
Short-term versus long-term tax savings
From an income tax point of view, the main difference between the RRSP and the TFSA is that while RRSP contributions reduce taxable income, TFSA contributions do not. TFSA withdrawals are, however, tax-free. You can withdraw your TFSA principal and earnings with no penalty and re-contribute up to that full amount of the principal and accrued earnings in the future as long as the two events do not occur in the same calendar year.
In this sense the TFSA is a more flexible vehicle for tax savings than the RRSP, since funds are not taxed upon withdrawal. There are advantages to both investments. Choosing the ideal proportion of TFSA and RRSP investments for your retirement portfolio will depend on your long-term financial outlook. It’s not usually a question of one or the other; there is typically a balance to strike between the two and some individuals take full advantage of both.
Maximizing your TFSA benefit
At time of writing, Canadian adults can contribute up to $5,500 per year to their TFSA. As with the RRSP, a major benefit of the TFSA is that contributions can be carried forward. If you have not invested since the program began in 2009, you may invest up to $36,500 in TFSA investments in 2015. You can have TFSA investment accounts with different custodians, provided that the total amount invested does not exceed your maximum allowable contribution.
Virtually all investors should have registered TFSA investments. The TFSA represents an opportunity to earn interest or dividend income with no tax penalty. The way to maximize the benefit of the TFSA, of course, is to assign your highest yield investments to a TFSA.
TFSAs & the HarbourEdge MIC
Of the minimum allowable investment in the HarbourEdge MIC ($50,000), any proportion can be TFSA-registered. For example, you could allocate $31,000 to your TFSA and deposit the balance as an unregistered investment or as an RRSP contribution. You could combine your $31,000 allocation with that of your spouse. These are just two examples of the ways in which you can include TFSAs in your HarbourEdge MIC investment.
If you already have a TFSA in the form of a mutual fund, bond, high yield savings account or other investment vehicle, you can cash it in and transfer the balance to our custodian, Canadian Western Trust. We can help you make this transfer using a T2033 transfer form. When the transfer is complete and cash has arrived in the Canadian Western Trust TFSA, we can invest the cash in HarbourEdge MIC shares.
For more information about TFSAs, their usefulness as a high yield investment vehicle, or to set up a TFSA account with HarbourEdge, please call or email Sean Dwyer, Investor Relations Manager, at (705) 443 8156 extension 27.