The Tax-Free Savings Account (TFSA) is an important investment vehicle that can be used for many different savings objectives over an individual’s lifetime. Since the introduction of the TFSA in January 2009, over 4.8 million Canadians have opened one or more TFSAs. To get a TFSA working for you, here are a few key points to remember:

A TFSA can be made up of an array of investments. Your TFSA can contain different types of investments, similar to those in a Registered Retirement Savings Plan, such as Guaranteed Investment Certificates (GICs), bonds, mutual funds and stocks. Contact your financial institution for more information concerning eligible investments.

TFSA contribution room accumulates every year. The maximum TFSA contribution room for an individual was $5,000 for 2009. For 2010 and 2011, your available TFSA contribution room is made up of three components:

• Your annual TFSA dollar limit of $5,000,
• Your unused TFSA contribution room from the previous year, and
• The total amount of withdrawals from your TFSA made in the previous year.

Example 1

If you contributed $5,000 in 2009 and only $2,000 in 2010, then you could contribute $8,000 in 2011. This amount includes the $3,000 unused contribution room from 2010 plus $5,000 for 2011.

Example 2

If you contributed $5,000 in both 2009 and 2010 and then withdrew $10,000 in November 2010, your contribution room for 2011 would be $15,000. This is calculated using your annual dollar limit of $5,000 for 2011 plus the $10,000 withdrawal made in 2010. Withdrawals are not added back to your contribution room until after the end of the year.

It is important to note that while you can open more than one TFSA, your total contributions in a year cannot exceed your available TFSA contribution room.

Income earned in a TFSA. Income such as interest, capital gains and dividends accumulates tax-free in your TFSA and withdrawals made from your TFSA are not taxed. Except for certain transfers, any withdrawals from your TFSA, including the income earned, will be used in the calculation of your TFSA contribution room for the following year.

Transfer your TFSA directly from one financial institution to another. If you have more than one TFSA, you can transfer funds directly from one of your TFSAs to another of your TFSAs without affecting your contribution room. The direct transfer must be completed by your financial institutions. If you withdraw funds on your own from one TFSA and contribute those same funds to another TFSA, the re-contribution will be considered to be a new contribution. As a result, your TFSA contribution room will be affected and you may be subject to a tax on excess contributions.

TFSAs are different from regular savings accounts. It is possible to make multiple contributions and withdrawals throughout the year to your TFSA like you would with a regular savings account. However, your total contributions in a year cannot exceed your available TFSA contribution room for the year or you would be subject to a tax on excess contributions. This tax is based on the total contributions made to your TFSA in a year and not on the account balance at the end of the year.

If you deposit more than your contribution room you will be subject to tax. If, at any time, your contributions in a year exceed your TFSA contribution room for the year, you will be subject to the TFSA tax on excess contributions. You are liable to a 1% tax per month on your highest excess TFSA amount in each month. This tax will accumulate until the excess amount is withdrawn. If you have excess contributions you should withdraw the funds immediately to avoid any additional tax.

Find out today how a TFSA can work for you. Take the time to familiarize yourself with the rules. If you have questions, contact your financial institution or the CRA at 1-800-959-8281 or visit our Web site at: www.cra.gc.ca/tfsa.

Only available for the 2009 tax year

Under proposed changes, you can claim a non-refundable tax credit on your 2009 income tax return based on eligible expenditures incurred for work performed or goods acquired after January 27, 2009, and before February 1, 2010, in respect of an eligible dwelling. The Home Renovation Tax Credit (HRTC) applies to eligible expenditures of more than $1,000, but not more than $10,000, resulting in a maximum credit of $1,350 [($10,000 - $1000) x 15%].

Eligibility

In determining whether you are eligible to claim the Home Renovation Tax Credit (HRTC), you will need to take the following factors into account:

• Your dwelling must qualify. Generally, any dwelling that you own and is used personally by you or your family can qualify, including your home or cottage.
• Eligibility for the HRTC is family based. A family will be allowed a single credit that may be shared within the family.
• To be eligible, expenditures incurred in relation to a renovation or alteration to an eligible dwelling (or the land that forms part of the eligible dwelling) must be of an enduring nature and integral to the dwelling.
• The expenditures must have been incurred after January 27, 2009 and before February 1, 2010, according to an agreement entered into after January 27, 2009.

Eligible expenses

• Renovating a kitchen, bathroom or basement
• Windows and doors
• New carpet or hardwood floors
• A new furnace, woodstove, boiler, fireplace, water softener, water heater or oil tank
• Home ventilation systems (of a permanent nature)
• Central air conditioner
• Permanent reverse osmosis systems
• Septic systems
• Wells
• Fixtures – blinds, shades, shutters, lights, fans, etc.
• Electrical wiring in the home (example: changing from 100 amp to 200 amp service)
• Home Security System (monthly fees do not qualify)
• Solar panels and solar panel trackers
• Painting of interior or exterior of a house
• Building an addition, garage, deck, garden/storage shed, fence
• Re-shingling a roof
• A new driveway or resurfacing a driveway
• Exterior shutters and awnings
• Permanent swimming pools (in ground and above ground)
• Permanent hot tub
• Pool liners
• Solar heaters and heat pumps for pools (does not include solar blankets)
• Landscaping: new sod, perennial shrubs and flowers, trees, large rocks, permanent garden lighting, permanent water fountain, permanent ponds, large permanent garden ornaments.
• Retaining wall
• Associated costs such as installation, permits, professional services, equipment rentals and incidental expenses

Ineligible expenses

• Furniture, appliances, and audio and visual electronics
• Purchasing of tools
• Cleaning carpets
• House cleaning
• Maintenance contracts (e.g. furnace cleaning, snow removal, lawn care, and pool cleaning)
• Financing costs
• Curtains and draperies

 You can claim to a maximum of $500 per child, the fees paid in 2008 that relate to the cost of registering your or your spouse’s or common-law partner’s child in a prescribed program of physical activity. The child must have been under 16 years of age or under 18 years of age if eligible for the disability amount, at the beginning of the year in which an elibigle fitness expense was paid.

Prescribed program

To qualify for this amount, a program must:

• be ongoing (either a minimum of eight weeks duration with a minimum of one session per week or, in the case of children’s camps, five consecutive days);
• be supervised;
• be suitable for children; and
• require significant physical activity (generally, most of the activities must include a significant amount of physical activity that contributes to cardiorespiratory endurance plus muscular strength, muscular endurance, flexibility and/or balance).