A survey shows that among new immigrants living in Canada for five years or less, 71% own an investment product, with the most popular being the Tax-Free Savings Account (TFSA), accounting for 40%.
Tax-Free Savings Account (TFSA)
History: This is a tax-free savings account opened to residents of Canada since 2009. Since 2009, there has been an annual contribution limit, and investments within this limit are completely tax-free.
Account Opening Requirements: New immigrants must reach the age of majority in their province of residence and possess a Social Insurance Number to open an account. Each individual can open more than one TFSA account and is not limited to one financial institution (such as the bank where they usually deposit), as long as the total amount of investments across all accounts does not exceed the prescribed total investment limit.
Types of Investments: By opening a TFSA, investors can choose from qualified financial products such as stocks, bonds, funds, loans, and term deposits to invest, allowing them to freely build their asset portfolio; however, it cannot be used to invest in real estate, precious metals, antiques, or artworks. All returns earned from investments within the account are permanently tax-free, meaning no taxes are owed to the government at the time of investment, growth, or withdrawal.
Benefits of Investing in TFSA
1. Tax-Free
For new immigrants who have just arrived in Canada and wish to start investing, opening a Tax-Free Savings Account is a good choice. This account is designed to assist you in saving and investing, with all earned returns being tax-free. You can withdraw funds at any time when needed, making it a flexible tool for saving towards future goals.
2. Flexibility
Investors can choose from a wide range of investment types through the TFSA, including funds, stocks, bonds, loans, and term deposits.
Investors can partially (or even fully) withdraw their funds when they need money without having to pay any additional fees to the government.
Within the total contribution limit, investors can contribute any amount to the TFSA at any time.
Investors can open several different TFSA accounts based on different investments and are not limited to one financial institution (to avoid putting all investments in the same company, allowing for diversification). In addition to the bank where savings are held, fund companies and financial advisory institutions can also assist clients in opening independent TFSA accounts.
Investment income within the TFSA will not be considered taxable income, thus not affecting the application for government benefits such as pensions, old-age security, education fund grants, and child benefits.
Eligibility for TFSA
Since the TFSA does not require investors to provide proof of income, any Canadian resident (including immigrants and international students) who meets the age and residency requirements can apply for and use a TFSA for investment. Therefore, new immigrants can immediately open a TFSA and start saving right away. The income earned and funds withdrawn from the TFSA are not included in taxable income. This means that the TFSA is highly flexible and will help you minimize income tax. Your contributions to the TFSA can help you achieve short-term, medium-term, or long-term goals.
TFSA Contribution Limits
Each year, Canada announces the contribution limit for the TFSA for that year. The limit from 2009 to 2012 was CAD 5,000, CAD 5,500 for 2013 and 2014, and adjusted to CAD 10,000 in 2015, then reverted to CAD 5,500 for 2016-2017.
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