# TFSA not deductible



## jrsaballa (Nov 22, 2015)

If Tax Free Savings Account is not tax deductible like RRSP, then how is it tax free? or tax exempt? during tax season?

How would you do it on this income tax calculator?
http://www.taxtips.ca/calculators/canadian-tax-2014/canadian-tax-calculator-2014.htm


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## jrsaballa (Nov 22, 2015)

Can I verify this:
"contributed to it is AFTER TAX income, but you can take out money that has been compounding in the TFSA TAX FREE."
http://youngandthrifty.ca/tfsa-vs-rrsp/


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## Eclectic12 (Oct 20, 2010)

I thought I'd answered this in your other thread "Tax Free Savings Account" ... maybe I wasn't clear or didn't provide enough detail.

The way it is tax free is that once $$$ or stocks have been contributed where any taxes owing are paid ... there is no further tax implications. Whether it is interest, dividends or selling stocks to make a capital gain ... as long as this activity happens inside a TFSA, there is no tax to pay. Withdrawals also have no impact on taxes.

So for example, when I contributed $$$ in early 2009, bought a stock that paid dividends, had it triple over one year, sold it, withdrew *more than I contributed* to pay down the mortgage ... there was no taxes to pay. 

Doing the same thing in a taxable account would have meant a year's worth of dividend income to report/pay taxes on and a large capital gain to pay taxes on when it was sold ... which would have reduced the $$$ to pay down the mortgage.

Using the TFSA meant that the only reduction in $$$ was the commissions paid to buy/sell (i.e. $20 total for commissions).


Cheers


*PS*

The RRSP withdrawal is included as income on the tax return for the year it was withdrawn. So the only way the RRSP can be "tax free" for the time it is in the account is if the RRSP contribution is deducted from income (which may or may not generate a refund). 

Otherwise, one would pay income tax on the RRSP contribution amount then pay income tax a second time when one withdraws from the RRSP.

Since income has to be paid on withdrawal, I prefer to think of it as a "deferred tax account" instead of a tax free account. The only registered account that is Canadian tax free is the TFSA.


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## Eclectic12 (Oct 20, 2010)

jrsaballa said:


> Can I verify this:
> "contributed to it is AFTER TAX income, but you can take out money that has been compounding in the TFSA TAX FREE."
> http://youngandthrifty.ca/tfsa-vs-rrsp/


CRA says:



> Contributions to a TFSA are not deductible for income tax purposes.
> Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.


http://www.cra-arc.gc.ca/tfsa/


Since the contributions are not tax deductible, whether one makes a TFSA contribution or not ... one has the same income which means one owes the same income taxes. No change in income tax means the dollars contributed are after-tax.

I've mentioned before that one can transfer stock into one's TFSA without selling it. This is also after-tax as putting the stock into the TFSA is a "deemed disposition". This means one has to report the capital gain and any taxes owing. The net effect is the same as had one sold the stock then contributed the proceeds.

As per the CRA quote, withdrawals don't affect one's taxes. This means once the $$$ or investment are in the TFSA - any $$$ withdrawn are tax free. The source of those $$$ are ideally compounding growth but the key here is once in the account, there are no further Canadian taxes to pay.

(I say Canadian tax free as the US does not waive the US dividend withholding tax of 15% for Canadians for a TFSA account like they do for an RRSP.).


If you have any doubts, as per the example in post #3 - I've put $$ in, bought a great stock, paid no tax on dividends, no capital gains tax when I sold and no income tax when I withdrew $$ to pay down my mortgage early.

Cheers


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## Eclectic12 (Oct 20, 2010)

jrsaballa said:


> How would you do it on this income tax calculator?


Missed this part ... the only possible entry a TFSA contribution could add to the calculator is where one sells a stock or transfers it to a TFSA without selling. Then it is possible there is a capital gain to report.

I say possible because where one has a Capital Loss that is equal to or larger than the Capital Gain ... there will be nothing to enter as the relevant line item in the calculator says:


> Capital gains *in excess of capital losses* (zero if negative)



If the money contributed is say from a bank account or income earned (i.e. not from selling/transferring stock) then there is no update for the income tax calculator.

For all TFSA withdrawals, there are no entries to update in the income tax calculator.

Cheers


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## jrsaballa (Nov 22, 2015)

Definitely less wordiness would be a waay better answer from the two above.

So in short, what I quoted from youngandthrifty.ca is the best answer.

AFTER the money has been taxed and you contributed, then what has been withdrawn is tax free.


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## vi123 (Oct 29, 2015)

jrsaballa said:


> Definitely less wordiness would be a waay better answer from the two above.
> 
> So in short, what I quoted from youngandthrifty.ca is the best answer.
> 
> AFTER the money has been taxed and you contributed, then what has been withdrawn is tax free.


Instead of criticizing eclectic for his helpful and detailed answer, why don't you go away and do a bit of reading before asking dumb questions? I mean "what is a TFSA" is about as simple as it gets, and you easily find that information in a million places across the web.


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## andrewf (Mar 1, 2010)

jrsaballa said:


> Definitely less wordiness would be a waay better answer from the two above.
> 
> So in short, what I quoted from youngandthrifty.ca is the best answer.
> 
> AFTER the money has been taxed and you contributed, then what has been withdrawn is tax free.



^That is rather ingracious....


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## Eclectic12 (Oct 20, 2010)

jrsaballa said:


> Definitely less wordiness would be a waay better answer from the two above.


My mistake ... I thought you wanted to understand the complete picture to avoid any mistakes and wanted some references to confirm what was in the link included in your post.




jrsaballa said:


> So in short, what I quoted from youngandthrifty.ca is the best answer.
> AFTER the money has been taxed and you contributed, then what has been withdrawn is tax free.


YMMV ... "after tax" is meant to reflect the overall situation instead of what's happening during the year.

Where one makes a TFSA contribution during the year - it has no impact on whether the tax return filed around April of the following year indicates one owes taxes and needs to make a payment to CRA.


Cheers


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## jrsaballa (Nov 22, 2015)

Thank you for your contribution


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## Joe Black (Aug 3, 2015)

jrsaballa said:


> Definitely less wordiness would be a waay better answer from the two above.
> 
> So in short, what I quoted from youngandthrifty.ca is the best answer.
> 
> AFTER the money has been taxed and you contributed, then what has been withdrawn is tax free.


Wow, your disrespect for people who tried to help you is amazing!

You got a very detailed answer because you apparently didn't understand the concept in your previous thread, despite very clear answers from others.


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## Davis (Nov 11, 2014)

CMF has its share of jerks, and there may be people here who think I've behaved like a jerk at times, but I don't think I have ever seen a new user who has been so consistently abusive toward people who are trying to offer assistance. This guy has taken "jerkness" to an unprecedented level.


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## none (Jan 15, 2013)

Challenge accepted.


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