The February 26, 2008 federal budget was short on the multiplicity of targeted tax fixes we have seen in previous budgets by this government, but contained one significant provision that will assist those in the throws of retirement income planning in particular, and families seeking new income splitting opportunities.
Tax-Free Savings Account
The new Tax Free Savings Account (TFSA) is an investment vehicle, unfortunately not available until 2009, that will allow Canadians over 18 to accumulate savings room of $5000 a year throughout their lifetime, and so with a life expectancy of approximately 80 years for the average Canadian, that means a funding potential of $310,000 over an average adult life span of 62 years.
Contributions to the account are not deductible, but earning accumulate on a tax free basis including interest, dividends and capital gains and withdrawals of both earnings and principle are tax exempt. However, those withdrawals will make new TFSA contribution room, on an indefinite carry forward basis, which provides us with some interesting new savings strategies for virtually every family member.
Moreover those withdrawals will not affect income-tested tax preferences like Child Tax Benefits, Employment Insurance Benefits or Old Age Security pension. This means you can earn the tax free investment income in the plan and avoid clawbacks, too. So how can Canadians take advantage of the plan? Several strategies come to mind:
OTHER BUDGET HIGHLIGHTS:
Details of individual provisions follow.
Next Time: Taxes Just Keep Rising for Pre-Retiring Baby Boomers and their Heirs. The federal budget predicts that personal tax revenues ñ by far the largest revenue line item for the government ñ will increase by $2 Billion in 2007-2008 and thereafter increase faster than personal income growth to $125,475 Billion in 2009-2010.