1. You’re already contributing the full amount to your RRSP each year
When you retire, you can draw income from your TFSA tax free. This may allow you to delay taking cash from your RRSP – and paying the taxes on those withdrawals.
2. You expect your income tax rate to be higher when you take money out of the TFSA
The money you put into a TFSA has already been taxed. So if your marginal tax rate is higher when you take the money out, you’ll have paid less in taxes. The opposite is true for saving in an RRSP. A higher tax rate over time will increase your tax bill when you withdraw your RRSP savings.
3. You need a flexible savings plan
You can carry forward any unused contribution room in your TFSA to future years. And, if you withdraw your TFSA savings, you can put back the full amount of your withdrawal at a later date and still save the maximum each year.
4. You want to reduce taxes on your investments
You can use the TFSA to shelter investments that would otherwise be taxed at the highest rate. That’s because you don’t pay tax on your TFSA’s earnings. Examples: interest income or foreign dividends. You may want to get some professional advice on how you can use a TFSA as an effective part of your tax planning.
Advantage for lower-income households
If you receive money from government programs based on your income, your TFSA won’t affect the amount you receive. From the Canada Child Tax Benefit to the Guaranteed Income Supplement (GIS), your credits and benefits stay the same — no matter how much money you take out of your TFSA.
Use a TFSA to shelter investments that would normally be taxed at the highest rate. You may want to get some professional advice on how you can use a TFSA as an effective part of your tax planning.