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Is the Interest of TFSA tax free?
February 14, 2009
8:29 pm
John
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Does your interest in your TFSA earn interest tax free as well? I know it's not much but after a few years it may add up.

Thanks,

John

February 14, 2009
11:02 pm
Peter
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Yup, once anything within the TFSA is earned, it, and any subsequent earnings on it within the TFSA, is tax free.

February 15, 2009
1:29 pm
Doug
British Columbia, Canada
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December 12, 2009
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Yes it does, John. That's one of the primary marketing points for a Tax-Free Savings Account. All interest earned in your Tax-Free Savings Account(s) is tax-free. If you do exceed your contribution room in any given year, which you don't want to do so be careful, there is a 10% penalty tax applied to interest earnings.

Cheers,
Doug

March 12, 2009
1:29 pm
sean
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So let's say I max out my 2009 TFSA deposit by purchasing $5,000 worth of shares in company "x." Will any capital gains or dividends incurred within 2009 be subject to the 10 per cent penalty?

Let's say my investment increases ten per cent by late 2009 (dare to dream). Suddenly the capital gains and dividends bump me above the $5,000 limit and I'm levied a penalty! The same predicament would be true for a basic savings account with $5,000 earning monthly interest. Have the feds set up a tax trap or what?

Is it wise to leave a few hundred dollars worth of breathing room until capital gains/dividend income can be deposited into a TFSA in subsequent years?

March 12, 2009
1:45 pm
Peter
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Hi sean, anything earned within the TFSA is tax free. See this thread, especially the second post there, for some clarification.

March 13, 2009
3:32 am
jesus
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let's say i contributed $5000 and some how I gained $500 in interest right now. I really needed the money and decided to take out just the $500 of interest. would i have $5500 contribution room next year?

March 13, 2009
10:20 am
Doug
British Columbia, Canada
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That's correct. However, because CRA also increases contribution annually for inflation to the nearest $500, I believe that - assuming you made no other withdrawals from your TFSA in 2009 - in 2010, your contribution room would be $6000. The regular $5500 including the $500 inflation increase from the CRA and the $500 you'd withdrawn in 2009.

Hope that helps,
Doug

March 14, 2009
3:03 am
jesus
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thanks doug. definately helped.

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