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Pattie Lovett-Reid

Chief Financial Commentator, CTV


The TFSA, or tax-free savings account, has been around for a decade, but that doesn’t mean we are using them to get the biggest bang for our buck.

A recent RBC poll found 43 per cent of Canadians felt misinformed about the TFSA and think it is simply a “savings account.” In fairness, the name is misleading and may be doing a disservice to the plan, which is more of a tax-sheltered savings vehicle than it is a savings account.

The TFSA permits a whole host of vehicles in the plan, that can save you a ton of money in taxes if they perform well. There is a caveat though: While you won’t have to pay capital gains if your stocks soar, if they lose money, you can’t take advantage of capital losses.

Here are a few qualified investments for the TFSA:

• Cash, GICs, bonds, corporate and government, stocks, mutual funds even exchange-traded funds. Of course the type of investment you put in the plan will be driven by your investment goals and tolerance for risk. Stocks will provide a potential return that is higher due to the risk and your capital gains aren’t taxed – which means if you hit it out of the park and your investment does really well, you get to pocket all of the profit.

Keep in mind that in order for your stocks to qualify, they must be traded on a designated stock exchange. If you use the plan to park cash, in a low interest rate environment and with inflation hovering around two percent, you will lose money and in essence miss the point of having the plan at all.

Here are a few investments that are not qualified:

• Land, units in a partnership, a stock that has been delisted and physical commodities, such as gold.

The government gives us very few opportunities to save money on taxes and TFSAs are the perfect vehicle to save for a summer vacation, generate retirement income or simply use as an emergency fund. The beauty of the plan is the flexibility to withdraw money when you need or want it.

And finally, if you are looking to really get the biggest bank for your TFSA buck, consider the following.

1. If you are retired and can no longer qualify to contribute to your RRSP, consider opening up a TFSA for any extra cash flow you may have. This is a great tax-free way to grow your income.
2. Saving for your child’s education through an RESP is great, however, consider topping it up with a TFSA where you can withdraw any or all of the funds tax-free.
3. Family income-splitting can be maximized if you are the top income earner and you contribute to your spouse’s TFSA. No attribution rules apply.

Bottom line: TFSAs are a rare gift from the government to grow income in a tax-free environment. The 2019 contribution limit is $6,000 to a lifetime cumulative limit of $63,500. By thinking strategically on how to put this plan to work, the result can potentially mean more money in your pocket and less in the government’s.