What is a TFSA?
A TFSA is a Tax-Free Savings Account. That is, a flexible savings account that allows Canadians to increase their tax-free investment income. It works concurrently with RESP and RRSP accounts to provide maximum opportunities for future planning.

Why Did the Harper Government Introduce TFSAs?
The creation of TFSAs provides an opportunity to save extra money for the future. Reducing taxes on savings is a great incentive that supports long-term economic growth and improves the standard of living of Canadians. With no tax paid on investment income or on withdrawals from a TFSA, Canadians have a greater incentive to save. As well, savings help to increase the funds available for economic investment. The government hopes these measures will further stimulate economic activity.

Are there Different Types of TFSAs?
As TFSA's are designed for individual rather than corporate use, there is only one kind of account.

Does Campbell & Lee manage TFSAs?
Yes, Campbell & Lee manages individual TFSAs. We do this as a service for our valued clients to give them a greater peace of mind and the convenience of investing in one institution. The TFSAs will usually be invested in similar assets as the main portfolio, already having been tailored to the client's investment objectives and risk tolerances.

What are the Limits on Contributions to a TFSA?
The program was initiated in 2009 with a contribution limit for that year of $5,000. The limit for 2010 is also $5,000 but is indexed based on the inflation rate. The indexed amount will be rounded to the nearest $500. For example, assuming that the inflation rate is 2% for 2009 to 2011, the TFSA dollar limit would be $5,000 for 2009, 2010 and 2011, but would increase to $5,500 for 2012. There is currently no lifetime limit to contributions.

Can I Make Up for a Year I Did Not Contribute?
With deference to any possible future lifetime limit, contributions can always be made up.

Are TFSAs Subject to Taxation at any Point?
Similar to an RESP, the capital invested in a TFSA is allowed to grow tax-free, and is not taxed upon its withdrawal. Unlike RESPs, any interest, dividends and investment income are also not taxed upon withdrawal. Hence, the advantages of a TFSA over a traditional savings account are varied depending upon the types of income involved. The bottom line is the increased variance in protected income.

What Investments Should One Hold in a TFSA
Though it depends on individual circumstances, fixed income and equities are both appropriate because there is no taxation on capital gains, interest, or dividends. Biggest considerations for investments:
1) Consistency with your investment objectives and risk tolerances.
2) Early on the biggest restriction is size; however, in January of 2011, an individual can initiate a TFSA with $15,000.
3) You can contribute foreign funds to a TFSA. However, your financial institution will convert the funds to Canadian dollars when reporting this information to the CRA. Your contributions cannot exceed your annual contribution limit in Canadian dollars.
4) Timing of withdrawals will have an impact on the asset mix.

Do I Have to Contribute Cash?
No – you can contribute securities if you have a non-registered account such as a cash or margin account with the same institution.

How do you get Money Out of a TFSA?
CDepending on the type of investment held in your TFSA, you can generally withdraw any amount from the TFSA at any time and for any reason, with no tax consequences. Withdrawals, excluding qualifying transfers that are made from your TFSA in that year, will be added back to your TFSA contribution room at the beginning of the following year.

You cannot contribute more than your TFSA contribution room in a given year, even if you make withdrawals from the account during the year. If you do so, you will be subject to a tax of 1% of the highest excess TFSA amount in the month, for each month you are in an excess contribution position.

Are there Penalties for Excess Contribution?
To be considered an excess contribution, you must have an excess TFSA amount at any time in a year if the total of all TFSA contributions you made in the year up to that time (other than a qualifying transfer or an exempt) exceeds the total of your TFSA contribution room at the beginning of the year plus any qualifying portion of a withdrawal made in the year up to that time. If, at any time in a calendar month, there is an excess TFSA amount in your account, you are liable to a 1% tax on your highest excess TFSA amount in that month. The 1% per-month tax will continue to apply for each month that the excess amount remains in the TFSA.

For more information, the Canadian Government's website on TFSAs is:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html