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All Canadians have a reason to save to fulfill important lifetime goals and aspirations. Whatever your reason, the TFSA can help you achieve your objectives.
Canadians can use the TFSA to start saving early for a range of needs they may have in the future. Many Canadians may prefer to use a TFSA to save for pre-retirement needs given the absence of tax consequences on withdrawals and the ability to avoid the use of RRSP room for non-retirement savings needs.
In recognition of the fact that people are likely to have multiple savings objectives at various stages of their lives – e.g. to purchase a car, home or cottage – the full amount of withdrawals may be re-contributed to a TFSA starting the following year, to ensure that there is no loss in a person’s total savings room.
The TFSA also provides more savings options and greater savings incentives to seniors and to low- and modest-income individuals.
Scenario:
Gillian saves $3,000 a year for 10 years in a TFSA and earns investment income on those savings. She decides to start a small business and withdraws her TFSA savings, which have accumulated to $40,000, with no tax consequences. Gillian runs her business for 10 years and then sells it. With the proceeds from the sale, Gillian decides to re-contribute to her TFSA the $40,000 she withdrew from it 10 years ago. She may do so without reducing her other available contribution room.
