TFSA Information Checklist and TFSA’s in Manitoba

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Now available for investment purposes, the new Tax-Free Savings Account (TFSA) is a registered account in which investment earnings, including capital gains accumulate tax free. Taxpayers over the age of 17 may contribute up to $5,000 each year to such an account. If a taxpayer's contribution room is not used in one year it may be carried forward to the next year allowing for a larger contribution in that year.

Unlike the RRSP, contributions to a TSFA do not result in an income tax deduction and withdrawals from a TFSA are not reported as income nor will they be included in net income for any income-tested benefits, such as the Canada Child Tax Benefit or Goods and Services Tax Credit.

The CRA will establish contribution room for all taxpayers on the basis of income tax returns filed. Taxpayers who do not file for a number of years may establish their contribution room by filing those returns under the taxpayer relief provisions.

Manitoba is proposing legislation under their Retirement Plan Beneficiaries Act that will allow the designation of a TFSA beneficiary outside of a will so that probate fees that would normally apply can be avoided. Manitoba Finance has advised the designation of beneficiary can be made now, however, the designation will only have effect once the Manitoba legislation has received Royal Assent.  In the event the TFSA account holder passed away before the legislation was brought in and a designation of beneficiary had been made for TFSA assets which differed from the will, an executor may have difficulty determining who the asset should be distributed to.

For more tax tips, purchase a copy of Essential Tax Facts written by The Knowledge Bureau's President, Evelyn Jacks, to learn how to ace your 2008 tax return and save money all year long.