Valley First

Understanding the ins and outs of a TFSA

Despite TFSA limit reduction, Canadians still have lots of investment options

Late last year, the new federal government made good on their campaign promise to reduce annual tax-free savings account (TFSA) contribution limits to $5,500. The change, which came into effect on Jan. 1, 2016, represents a $4,500 decrease to the $10,000 limit put in place by the previous federal government.

While this news was the cause for much conversation in the financial sector, it was largely met with apathy or disregard by most Canadians. Since its introduction in 2009, TFSA limits have changed three times—two increases and, now most recently a decrease—however, the changes mean little for many savers and investors as they are far from reaching their lifetime contribution limit of $46,500.

If you’re wishing you had the cash to max out your TFSA limit, you have plenty of company. Only about half of the ten million Canadians who hold a TFSA are able to maximize their yearly contribution. If you are young and just starting out or recently had some extra expenses this year, it doesn’t mean that you have missed your chance to contribute to your TFSA. The contribution limit for TFSA is a lifetime limit and is the same for everyone regardless of income, if you hit the jackpot a few years down the road you will be able to top up your TFSA for any amounts not used in the past.

The reasons for not taking advantage of a TFSA are many and varied. However, for most it comes down to a question of having money on hand to save, prioritizing other financial obligations or not fully understanding the benefits of the TFSA product. This is where talking to an investment expert really can help as they work with clients to set goals, understand their financial position and put workable plans in place.

With regards to understanding the ins and outs of a TFSA, there’s a few major differences from a regular savings account — the most obvious being that it’s a registered account and cash flows in and out are tracked to facilitate compliance. A second major difference is that TFSAs are not restricted to cash, you may keep your funds in a variety of investment options including publicly traded securities and mutual funds. This means that you may be able to earn a substantially higher return than a regular savings account. A third difference is that any income generated by your TFSA, interest or capital gains for example, is not taxed — ever.

While you may not be able to fully capitalize on your TFSA this year, the potential of paying less tax at some point down the road is still a good win for the consumer. Sitting down with your local investment expert to make sure you understand your options and what works best for your financial and tax situation is a good first step.


Talk to us

Whether you’re looking for more information, or you’d like to let us know how we can serve you, you’ll find our contact information here.
We encourage you to visit a representative at any of our branches for more information on how Valley First can make things simple!

Simplify Your Finances

Make the most of your money with an account that is simple and free—get a Simply Free Account™ today!

Learn more