Dear Nancy,
I would like to make a contribution to my TFSA. I have only contributed $5,000 the first year the program started. I believe that was in 2009. It has hardly grown because it has been in a "high interest" savings account. I came into some money so now I can put in the maximum. What is the most I can put in? Is there some other investment that I can look at to give me a better return?
Thanks,
Glen
Dear Glen,
The total lifetime contribution a Canadian can put into a TFSA as of January 1, 2015 is $36,500. So the fact that you have already put in $5,000 leaves you with allowable contribution room of $31,500. As for investments, you can invest those funds in holdings very similar to that of a self-directed RSP or RIF. They can be individual stocks, bonds, mutual funds, ETFs, structured notes, stripped bonds to name a few. Any income and growth that these investments yield is not taxable when sold or received into the account. When there is a loss of capital, then the loss is not declarable on your return against other non-registered capital gains, so be wary of this when investing in speculative investments that may not work out to make you money.
As for the contribution, it sounds like in your case you have cash to contribute. If you didn't, you could contribute an investment from a non-registered account and it is deemed to be the current market value on the day of contribution. If that investment has a capital gain, it must be declared on your income tax return as such for that year. If there is a capital loss since you are still the beneficial owner, you could not declare the loss, unfortunately. This is the same rule that is applied when making contributions "in kind" to an RSP.
You should also explore (if you haven't already) contributing into an RSP, providing you have contribution room. The RSP is also a tax-sheltering opportunity with the benefit of reducing your taxable income. There are specific benefits unique to the RSP and TFSA. One contributes pre-tax income to an RSP versus after-tax dollars into the TFSA. The RSP allows for the receipt of U.S. income without being subject to a non-resident withholding tax; the TFSA does not. Any income from a U.S. source earned in a TFSA is subject to the 25-per-cent non-residency withholding tax, which can be reduced to 15 per cent by filing the W8BEN form with the IRS. These are the major differences to be aware of.
There are many options for the types of investments you can own in a TFSA, so it would be wise that you seek investment planning advice before doing so. For some investors, it makes sense to own their interest-paying fixed income in it; for others it makes sense that they own equities. Everyone's situation can be different, so get professional advice and a review of your overall investment portfolio to figure out what type of investment is best in what type of account.
Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website www.nancywoods.com or send an email request to asknancy@rbc.com. You can send your questions to asknancy@rbc.com as well.