There are many investment options to consider in Canada, and at times it can feel overwhelming and confusing, especially if you are new to Canada and unfamiliar with the options available to you. I recently caught up with a friend who moved to Canada not too long ago. She’s currently researching her investment options, and her experience has shown that, while the principles of sound financial management might be the same around the world, each country has different processes and rules regarding the types of tax-efficient investments one could invest in.
Whether you are new to Canada or just new to investing, you might be surprised by the number of government-supported investment solutions available for personal investors. Your eligibility for various programs depends on how long you have been living and working in Canada.
If you are someone who recently arrived Canada, and are looking to start saving and investing right away, one option you may want to consider is Tax-Free Savings Accounts (TFSAs). Here are the top five things to know about this investment option.
TFSAs: What new Canadians (or new investors) need to know
1. The details: A TFSA is an account where individuals can set money aside tax-free over the course of their lifetime. Contributions to a TFSA are not deductible for income tax purposes.
2. Eligibility: Any Canadian resident who is 18 years of age or older and who has a valid social insurance number is eligible to open a TFSA. You are not required to have earned an income to open up an account.
3. Tax Benefits: 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earned in the account – for example, investment income and capital gains – is generally tax-free, even when it is withdrawn. Canadians can save up to $5,500 a year without incurring taxes on interest earned or withdrawals.
4. Withdrawals: You can withdraw money from your account whenever you need to, and at RBC, you will not be charged a withdrawal fee. In addition, amounts withdrawn in a given year are added back to your contribution room for the following year.
5. Investment options: When opening up a TFSA, you have the option of investing your money into a savings account, GIC, mutual fund, stocks and/or bonds.
Start contributing to a TFSA right away
Unlike a registered retirement savings plan (RRSP), you can start contributing money into a TFSA right away and take advantage of the tax-free savings; making the TFSA an attractive alternative to an RRSP.
While moving to a new country generally consists of many to-do list items, taking the first steps to sort out your finances will help set you up for success. Discovering what the Government of Canada has to offer is a great way to help you get started. Talk to a financial advisor to learn more about TFSAs. They can help you understand more about available investment options that will best fit your needs and goals.
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