Online access of your account at CRA

You can access your account at CRA via My Account. It is a convenient way to check your account information, RRSP & TFSA contribution rooms and amend your tax returns.

With My Account you can see following information:

• tax refund or balance owing;
• direct deposit;
• RRSP, Home Buyers' Plan, and Lifelong Learning Plan;
• Tax-Free Savings Account;
• NETFILE access code;
• tax returns and carryover amounts;
• tax information slips – T4, T4A, T4A(P), T4A(OAS) and T4E
• disability tax credit;
• account balance and payments on filing;
• installments;
• Canada Child Tax Benefit and related provincial and territorial programs payments, account balance, and statement of account;
• GST/HST credit and related provincial programs payments, account balance, and statement of account;
• Universal Child Care Benefit payments, account balance, and statement of account;
• children for which you are the primary care giver;
• Working Income Tax Benefit advanced payments;
• pre-authorized payment plan;
• authorized representative; and
• addresses and telephone numbers.

You can also manage following information:

• changing your return(s);
• changing your address or telephone numbers;
• applying for child benefits;
• arranging your direct deposit;
• authorizing your representative;
• setting up a payment plan;
• formally disputing your assessment or determination; and
• changing your marital status.

Ten Basic Facts about Tax Free Savings Accounts (TFSAs)

Tax-Free Savings Account (TFSA) is a new registered general savings vehicle that was introduced in 2008 federal budget that allows Canadians to save money in the account tax-free throughout their lifetime. The income and earnings in the TFSA plan accumulate without any tax implication.  The ten basic facts about eligibility, contribution, withdrawals, effects of marriage breakdown and beneficiary designation of the TFSA plan.

1. Who is eligible to open a TFSA? 

An individual who is 18 years or older and has a Canadian Social Insurance Number is eligible to open a TFSA account. Some provinces and territories have age of majority as age 19 (British Columbia, New Brunswick, Nova Scotia, Newfoundland, Northwest Territories, Yukon and Nunavut) and financial institutions in those provinces may not open a TFSA for individuals who not yet 19 years old. But the contribution room accumulation will start at age 18. There is no limit to number of accounts a holder can open but there is a limit how much a holder can contribute

2. What is the contribution limit and who can contribute?

Contribution limit for TFSA is $5000 each year for 2009 to 2011. But will remain  $5,000 in 2012. The limit for the future years will be increased based on inflation and rounded to nearest $500. 

Anyone with the contribution room can contribute to TFSA without any penalty or interest. Only the account holder can contribute to the TFSA (i.e. no spousal plans similar to RRSP) but an individual can give money to his\her spouse or common law partner for contribution without any attribution rules. TFSA contributions are not tax deductible.

3. How is TFSA contribution room determined?

The TFSA contribution room is made up of:

• TFSA contribution limit for the year ($5,000 per year plus indexation, if applicable);
• any unused TFSA contribution room from the previous year; and
• any withdrawals made from the TFSA in the previous year, excluding qualifying transfers or specified distributions.

Example: Rosa opened in TFSA account in 2009 and contributed $2000 and did not make any contribution in 2010. Her contribution room for 2011 is $13,000 (Carry forward of $3000 from 2009 and $5000 from 2010 and $5000 from the current year).

You can find TFSA contribution room from Notice of Assessment (NOA), calling CRA or by logging in to My Account at CRA. If you have filed tax returns early the NOA may not reflect the correct contribution room and best way find the limit is by calling CRA or logging to My Account.

4. What happens if I have over contribute for the year?

A penalty will be assessed by Canada Revenue Agency (CRA) of 1% per month on your excess contribution

5. What investments can I hold in the TFSA?
• Cash
• Guaranteed Income Deposits
• Bonds
• Mutual funds
• Stocks listed in designated exchange

5. Can I transfer TFSA from financial institution to another without tax implications?

TFSA in one institution can be transferred to another as qualified transfer without any tax implication.

Example:  Edward has a TFSA account with Royal bank and balance of that account $7500 and would like to transfer it to TD bank. He has to go to TD and complete a transfer form requesting the transfer and then TD will request.

7. Can I withdraw from TFSA? 

Funds in the TFSA can be withdrawn without any tax implications and the withdrawal amount will be added to the contribution room of the following year except for certain exceptions.

Example: Hillary contributed maximum to TFSA each year and withdrew $2000 in 2011. Her contribution room for 2012 will be $7500 (contribution room added for replacing the withdrawal $2000 plus contribution room of $5500 for 2012).

8. Will I receive any tax slips from CRA for income or withdrawals?

There will not be any tax slips for income, withdrawal or transfers except some situations.

9. What happens if there is a marriage breakdown or common law partnership?

When there is a breakdown of marriage or common-law partnership, TFSA assets can be transferred from the holder to the spouse or common law partner’s TFSA without affecting either holder’s contribution room. To do this, following conditions must be met:

§         you and your current or former spouse or common-law partner are living separate and apart at the time of the transfer; and

§         you are entitled to receive the amount under a decree, order or judgment of a court, or under a written separation agreement to settle rights arising out of your relationship on or after the breakdown of your relationship

10. Can a beneficiary designated for TFSA?  

Beneficiary can be designated in the plan (except in Quebec) or in the will. If the spouse or common law partner is designated as successor holder then after holder’s death spouse becomes holder of the account without any tax implications and it will not affect spouse or common law partner’s contribution room. The transfer must be made directly between the TFSAs.

Here are the other posts I have written about TFSA:

TFSA and tax slips

Contingent beneficiary for RRSP, RRIF and TFSA

Is inheritance taxable?

TFSA and tax slips

I received a question from a reader whether he would receive tax slip for his TFSA contributions or withdrawals or income earned in TFSA. No there will not be any tax slips for TFSA except for some estate beneficiary scenario. Any contribution to TFSA is not tax deductible either. That means you will not get a contribution receipt. Any growth within the plan is tax exempt and withdrawals are not taxable either.

Summary

1.TFSA contributions are not tax deductible.

2. Income earned in the TFSA plan is tax exempt (except certain estate beneficiary scenario).

3. TFSA withdrawals are not taxable.

If your spouse is successor holder of your TFSA, your plan will be changed to your spouse’s name after your death. No tax consequence to you , your estate or your spouse and it will not affect your spouse’s contribution room.  But if you have named a beneficiary in the plan other than successor holder then any income earned after the date of death is taxable to the beneficiary and beneficiary will receive a T4A. If the beneficiary contributes to his or her TFSA it will use up his or her contribution room (except for spouse as beneficiary and not successor holder).  You can read about what happens to your TFSA at death here.

Contingent beneficiary for RRSP, RRIF and TFSA

Contingent beneficiaries are beneficiaries that are designated to receive the assets of a deceased person in the event that the primary beneficiary is no longer able to assume those assets for some reason. It is recommended to that wills contain a reference to at least one contingent beneficiary as a means of preparing a backup plan for the disposition of the property and other holdings of the deceased if necessary. It is permissible to name more than one contingent beneficiary and even to assign a specific order of succession to the additional listed persons or entities.  I am also aware some of the financial companies allow contingent beneficiaries for your RRSP, RRIF or TFSA.

Is inheritance taxable?

Question from Cathy:

If you inherit money from a relative, are you required to pay tax on the money received?

Answer;

No it is not taxable to you but may be taxable to your father in his final return, There are different scenarios of how it will be treated depending the relationship of the beneficiary and source the funds. Spouse or common-law partner or qualified dependent can roll over the deceased RRSP or RRIF without any tax consequence to the deceased or the beneficiary. I assume your question is for inheritance other than from a spouse.

Example 1:

For example, lets assume that your father contributed $5000 in his RRSP and named you as beneficiary of his RRSP in the plan or in the will. Let’s assume on the date of death it was $5250 and on the settlement date (the date financial institution processes the trade and sends the money to you) it was $5400.  You will get a T4RSP tax slip from the financial institution for income earned after the death  (i.e. $150) and this needs to be included in your income in the year of settlement. Your father’s executor/ executrix will receive a T4RSP for $5250. This has to be included in your father’s final tax return as income.

Example 2:

For example, lets assume that your father contributed $5000 in his TFSA and named you as beneficiary of his TFSA in the plan or in the will. Let’s assume on date of death it was $5250 and on settlement date (the date financial institution processes the trade and sends the money to you) it was $5400.  You will get a T4A tax slip from the financial institution for the income earned after the death  (i.e $150) and this needs to be included in your income in the year of settlement.  But $5250 is not taxable income to your father because the TFSA contribution was done with after tax money.

Example 3:

For example, lets assume that your father invested $5000 in his investment account and the value on the settlement date was $5400 and he indicated his will that you to receive proceeds of that investment from his estate (plan designation is not available for investment accounts). The financial institution will pay the $5400 to the estate and then estate will pay $5400 to you.  The $400.00 capital gain needs to be included in your father’s final return and $5400 will also be subject to probate fees (another complex topic). You will receive $5400 from the estate and it not taxable income to you.

Based on above scenarios, you will notice that there is no inheritance tax in Canada but your father may pay taxes on in his final return due deemed disposition of those assets and therefore the estate should have sufficient funds from other assets to pay those taxes.