Meet the new Tax Free Savings Account (TFSA)

par Kate McCaffery | April 22 2015 10:20AM

Although Tax Free Savings Account contributions aren't quite doubled as promised, the Finance Minister's tabled documents increase the amount Canadians can contribute each year, from the current $5,500, to $10,000, effective as of January 1, 2015.

budget_1The amount is cumulative – unused contribution room is carried forward each year. As of today, those who've made no contributions to their TFSA will have $41,000 worth of space available, up from $36,500 if the provisions to increase the limits are not passed.

Although earlier provisions allow indexing for inflation on the original $5,000 limit, the proposed changes remove inflation indexation. "In combination with other registered savings plans, a $10,000 TFSA annual contribution limit will allow most Canadians to save a significant proportion of their annual incomes in a tax-efficient manner. In this context, the annual limit will not be indexed to inflation."

Although the TFSA limit increase is retroactive to January 1, 2015, and although the Canada Revenue Agency will administer and respect the increased amounts based on today's announcement, some experts recommend exercising caution in making maximum contributions until the budget is confirmed by legislation.

Kate McCaffery with files from Alexandra Macqueen