TFSA confusion lingers

“While the adoption rate has been swift, we are seeing some uncertainty and confusion among Canadians when it comes to how to make the most out of a TFSA,” said David Heatherly, vice-president, Bank of Montreal.

While nearly 70% said it was a good investment and savings tool, only 36% have gotten around to opening one. Among those who had not opened one, a lack of cash was the reason cited by 40%.

“We encourage Canadians who are in a position to do so to try to contribute the maximum amount per year,” Heatherly says. “This will allow for even greater tax savings while building up their investment portfolios.”

The survey found a gender gap in understanding the TFSA, with 67% of men considered knowledgeable, compared to 55% of women.

Ontarians had the best understanding of the program (62% were considered knowledgeable), while Atlantic Canada had the lowest understanding, at 50%.

“When looking at the overall health of your investment portfolio, it’s important to take advantage of tax-sheltered investment options,” said John Waters, manager, tax planning, BMO Nesbitt Burns. “Taxes can have a significant impact on net investment returns achieved, which is why TFSAs are increasingly playing an essential role for a large number of Canadians looking to balance their portfolios.”

So, for the record, here are the basics, in case any of your members are still unsure of the rules on the TFSA:

• Canadians age 18 and older can contribute up to $5,000 per year into a TFSA.

• Any unused contribution room from the previous year can be added to the contribution room for the year.

• Any withdrawals can be re-contributed the following year without affecting your annual contribution limits.

• TFSAs can hold the same investments as in a registered retirement savings plan, including cash, mutual funds, stocks, GICs and bonds.

• Contributions to TFSAs are not deductible for tax purposes, and withdrawals of contributions and earnings from the account are not taxable.