Beginning January 2009 Canadians will be able to save in a new tax free account. The new tax free account was approved by the federal government but will also be subject to provincial financial rules. This account is similar to other savings accounts; like the RRSP savings account in some aspects, but there are also differences.
The new tax free account differs from an RRSP in that any growth that occurs in the account will not be taxed. Also you will not be taxed if you decide to withdraw the funds. This an advantage that is not available with an RRSP account, in fact there can be severe penalties when withdrawing from an RRSP, except in the cases of withdrawals made towards the purchase of a first dwelling or principal home.
The tax free account may be a bit irritating for some who like to benefit from a tax deductible right away each year. This is because one is allowed to contribute a maximum of $5,000 each year but may not deduct this amount from their tax eligible income. This may not be convenient for some who have plans for their tax returns but the tax free account is still a welcome addition to all the other avenues of saving.
Once in the tax free account funds can be invested into any type of investment depending on the individual and their financial adviser. Any profits stay in the account and can be allowed to grow or withdrawn towards other investment projects. Several of the major banks and online banks are already announcing the opening of this account.
