Tax Free Savings Account

 

Welcome to my TFSA page. 🙂 Here you can see what kind of investments I hold.

The TFSA is the Canadian version of the Roth IRA. So no dividends or capital gains are taxed in this account. 

Here are the TFSA contribution limits by year.

  • 2009 – $5,000
  • 2010 – $5,000
  • 2011 – $5,000
  • 2012 – $5,000
  • 2013 – $5,500
  • 2014 – $5,500
  • 2015 – $10,000
  • 2016 – $5,500
  • 2017 – $5,500
  • Total = $52,000 contribution room

I have contributed a total of $50,000 into TFSA. This is the bulk of my TFSA portfolio. It has been growing steadily over time.

I’ve also contributed $17,000 into my Canadian Western Trust TFSA. 100% of the funds are invested in Antrim Balanced Mortgage fund which is a mortgage investment corporation based in British Columbia. This is a fixed income asset so there is no capital appreciation over time. It just pays out a steady 6% to 7% annually which gets reinvested to purchase new units.

This leaves me with $3,000 contribution room remaining for 2017.

Here’s a breakdown of what I currently have across my different Tax Free Savings Account (TFSA.)

Investment vehicle allocation tips:

  • TFSAs are generally good for investing in Bonds, GICs, High interest savings accounts (HISAs), Real Estate Investment Trusts (REITs), and Canadian growth stocks, such as aggressive retail chains and mining/resource companies.
  • Canadian dividend paying stocks already receive a dividend tax credit and will not significantly benefit from a tax shelter so they should be invested outside of TFSAs and RRSPs.
  • U.S. stocks, especially dividend paying ones, are generally best placed in an RRSP. Thanks to the tax treaty between Canada and the U.S. dividend distribution from a U.S. company will not face withholding tax in a Canadian RRSP.

  18 Responses to “Tax Free Savings Account”

  1. Just curious, is this the TD Waterhouse direct investing TFSA? thanks!

  2. What about using TD eseries in TFSA….whats your thought on it..

    • That’s a great idea, especially for holding the e-series Canadian Bond Index Fund because the interest will be tax free. 🙂 I like the TD e-series in general and own some myself. Out of personal choice I prefer to hold more risky, high interest fixed income and growth stocks in my TFSA to hopefully take advantage of more tax savings. It’s a more aggressive strategy than what most people use but I think index funds in general are a great place to start.

  3. Hi! Would you advise buying Canadian Dividend Funds- a sort of mutual funds with TFSA? Thanks.

    • Hi, I would keep those funds inside the TFSA to get the maximum tax benefit. However, if you have additional investments that pay capital gains or interest income then the TFSA priority should go to those types of investments first.

      A couple of examples:

      1) Someone wants to buy $36,500 of Canadian Dividend Funds that pay eligible dividends and that’s all.
      I would put all $36,500 worth of funds into a TFSA.

      2) Someone wants to buy $10,000 of bonds. $50,000 of growth stocks like Dollarama, or Canfor. And $30,000 in a dividend fund.
      I would put $10,000 of bonds and $26,500 of growth stocks inside the TFSA to max out the contribution limit. Then put everything else in a RRSP, RESP, or non-registered account.

      The rule of thumb is to put the highest taxed investment class into tax sheltered accounts first. Canadian dividend funds and stocks that pay eligible dividends are taxed very favourably due to the dividend tax credit so holding them in a regular, fully taxable account is worth the sacrifice because the taxes paid on those dividends earned are less than the savings gained from not paying the higher taxes on other forms of investment returns like capital gains and interest income.

  4. Hi there,

    Thanks for keeping this blog active. A quick question: I have Canadian dividend funds in my TFSA. Would you advise I take this out of TFSA? Thanks again.

    • Hi Anon. It depends on what kind of other investments you have. Keeping your Canadian dividend funds in a TFSA is your best option if you still have lots of TFSA contribution room.
      But if you have Canadian bond funds or something else then that should take priority in your TFSA over your dividend funds. Everyone is different, but for most people in your situation my general suggestion is to just leave the funds in your TFSA for now. I’ll make a chart in the future to show how best to use tax advantaged accounts like TFSAs. 🙂

  5. Hi Liquid Independence,

    Do you have to notify the company you’re buying shares/stocks from that you would like to participate in the DRIP/SPP (share purchase plan) ? I have no certain features on my discount brokerage account. I am buying my first stock by myself and I prefer to start with DRIP/SPP. Could you please guide me through it? Thanks.

    • I don’t know about other brokers, but with TD I just call them and ask to DRIP everything. They call it a blanket DRIP where all existing and future stocks in your account will automatically DRIP with sufficient distribution. They would be synthetic DRIPs. You can call again to cancel the reinvestment plan any time.

  6. hi, you mentioned that Canadian dividend paying stocks already receive a dividend tax credit and will not significantly benefit from a tax shelter so they should be invested outside of TFSAs and RRSPs.
    But my question is isn’t any dividend received (from canadian dividend paying stock) in TFSA is completely tax free vs paying dividend in non registered a/c even though there is favorable tax due to dividend tax credit. doesn’t it make sense to not pay dividend at all rather than pay something in a non registered a/c. Am i missing anything. could you please help me understand? i would very much appreciate it

    • You’re right. You should always invest inside a TFSA rather than a non-registered account, as long as you have the contribution room to do so. The TFSA contribution room is currently $5,500 per year. Many people can max out their TFSAs in any given year and still have money to invest. In this case they have to consider what to put into their TFSA and what to leave out.

      In other words, if someone has $10,000 to invest, and plans to use half of their money purchasing dividend stocks, and the other half to buy other types of investments, then they should prioritize the limited $5,500 TFSA space for their other investments. These other investments could be anything bonds, or REITs, to growth stocks.

  7. This is the second time I’ve heard about stocks/funds in a TFSA. My understanding was that I can save cash in the TFSA. How do I get other securities in their? I bank with a Credit Union.

    • It would depend on what kind of securities your credit union would allow you to hold in a TFSA. For maximum investment choices I opened a self-directed TFSA so I can go into the capital markets and buy stocks or funds. You can ask your credit union what other options they offer for TFSAs besides cash savings. They may offer you some funds to choose from.

  8. I am just starting out my investment journey in Canada, and I read about the TFSA and would like to use it to purchase some stocks. However, most banks I have contacted state that there is a $25 per quarter charge on investments on the TFSA. It is only waived if the clients total holdings exceed, x amount. Obviously, just starting out, $100 per year would be a significant hit to my returns, and I would have to purchase a high dividend yielding REIT or something for the sole purpose of paying this fee.

    I know your net worth is probably above this thresh hold, but has this been your experience with the major banks in the past (RBC, TD, BMO etc)? Can you recommend a bank that does not charge quarterly fees for Investments through TFSA?

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