National Association of Federal Retirees
Peel Halton and Area Branch
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Tax-free Savings  |  Senior Home-owners' Property Tax Grant

Tax-free Savings - effective January 1, 2009

The following is an authorized reprint of an article contained in the October 15, 2008 Toronto Star business page, authored by Ellen Roseman.

Tax-free savings set for takeoff

There's nothing like a stock market plunge to make you warm to the idea of earning 2 to 3 per cent interest on your savings.

Still turned off by today's low rates? Just wait till January, when you can shelter up to $5,000 a year from tax.

The tax-free savings account, introduced in the most recent federal budget, will be available on Jan. 2, 2009 (when financial institutions reopen after the holiday).

Banks, investment dealers and mutual fund managers are taking applications already. They're starting to advertise and posting information at their websites.

ING Direct has gone a step further. It's offering bonus interest from now until Dec. 31, if you apply for a TFSA and put money into an investment savings account.

Suppose you deposit $1,000 at ING's current 3 per cent rate. Instead of earning $2.50 a month, you will get double the interest or $5 a month to make you feel as if you're paying no tax on your investments.

"We're opening thousands of tax-free accounts every day," says ING chief executive Peter Aceto. "I've already opened an account for myself, my wife, parents and in-laws."

How is the new tax-free savings account different from a registered retirement savings plan?

There are two key differences:

  1. Contributions to a tax-free savings account are not deductible from your taxable income, as are RRSP contributions.
  2. Withdrawals from a tax-free savings account are not added to your income and taxed at current rates, as are RRSP withdrawals.
The tax-free savings account also offers greater flexibility.
  1. You can take money out any time and replace it later without losing your ability to make future contributions, as you do with RRSPs.
  2. You can use a tax-free savings account as collateral for a loan, which you can't do with an RRSP.
  3. You can put money into a tax-free savings account for a spouse or child over 18 without being subject to the attribution rules that apply to RRSPs.

This means you won't be taxed on the income in a spouse's or child's TFSA and you can still contribute up to $5,000 to your own plan.

The tax-free savings account also provides a measure of fairness for poorer citizens.

Since RRSP withdrawals boost your taxable income, they can reduce your eligibility for means-tested benefits such as the guaranteed income supplement and nursing home subsidies.

"For some time, government programs in Canada have not only discouraged personal saving by lower-income Canadians, they have often effectively prohibited it," says a paper published last month by the C.D. Howe Institute.

"Some commentators may criticize TFSAs on the basis that `low-income Canadians don't save.' But that is not the case they do save, just in small amounts," say the paper's authors, John Stapleton and Richard Shillington.

TFSA withdrawals, which are not subject to clawbacks of benefits, will allow low-income Canadians to save in a more fruitful way, the authors say. But it's urgent for provinces and territories to also address the obstacles to savings posed by needs-tested programs.

One final point: A tax-free savings account is not just for interest investments. It can shelter any income stock dividends or mutual fund distributions from tax.

So, ask your financial institution whether this new registered plan makes sense for you and when you can prepare the paperwork.

By January, banks will be busy with RRSP sales and will have less time to talk.

Ellen Roseman can be reached at: by email.
Remember to designate a beneficiary for your TFSA. By doing so the funds will be distributed to your designated beneficiary and will not form part of your Estate and hence, possibly, subject to probate fees.

Senior Home-owners' Property Tax Grant

For current years this credit is replaced by the Trillium benefits - however you must apply for such payments when filing your federal income tax return.

The Ontario Senior Homeowners' Property Tax Grant is an annual amount provided to help offset property taxes for seniors with low and moderate incomes who own their own homes. For 2009, the maximum grant is $250.00. For 2010 and subsequent years, the maximum grant will be $500.00.

Senior homeowners will apply for the 2009 grant when they file their 2008 personal income tax returns.

You can apply for the 2009 Ontario Senior Homeowners' Property Tax Grant if you meet certain conditions, including residency, age and income requirements.

To receive the grant, you have to apply for it each year by completing and attaching Form ON479, Ontario Credits and Senior Homeowners' Property Tax Grant, to your personal income tax return. (Note: this form will be included in the Ontario Returns packages)

For more details visit the Province of Ontario's website:

Do you know of a program that could help National Association of Federal Retirees members save funds (federal, provincial, or business initiatives)? Let us know!

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