Define: Tax-Free Savings Account

UK Accounting Glossary

Definition: Tax-Free Savings Account



Advertisement



Full Definition of Tax-Free Savings Account


A tax-free savings account is a Canadian savings account that charges no taxes on earned interest, dividends paid by Canadian companies, or capital gains on stock issued by Canadian companies. Account-holders may also withdraw funds from a tax-free savings account without tax penalties. Any Canadian resident 18 years old or older with a valid social insurance number may open a tax-free savings account. Non-residents with property or social ties to Canada may be eligible for a tax-free savings account under some circumstances as well. Canada first introduced the tax-free savings account concept in 2009. The act that created the tax-free savings account initially capped contributions at $5,000 per year. The contributions cap on the tax-free savings account was indexed to the inflation rate so that it could increase in subsequent years, and will be rounded to the nearest $500. Depositors are allowed to carry forward any unused room under the cap to future years. Withdrawals from a tax-free savings account may also be returned later without reducing contribution room. A tax-free savings account is distinct from a registered retirement savings account, another Canada-specific financial instrument, in that funds in the latter may only be used for retirement; funds in a tax-free savings account may be used for any purpose a depositor chooses. Withdrawals from a registered retirement savings account are also subject to taxes. However, unlike with registered retirement savings accounts, contributions to a tax-free savings account are not tax-deductible.


Advertisement




Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/tax-free-savings-account/
Modern Language Association (MLA):
Tax-Free Savings Account. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. March 29, 2020 https://payrollheaven.com/define/tax-free-savings-account/.
Chicago Manual of Style (CMS):
Tax-Free Savings Account. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/tax-free-savings-account/ (accessed: March 29, 2020).
American Psychological Association (APA):
Tax-Free Savings Account. PayrollHeaven.com. Retrieved March 29, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/tax-free-savings-account/

Definition Sources


Definitions for Tax-Free Savings Account are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 5th February 2020.