Blog: Tax Tips 2016: Interest Deductibility and TFSAs

December 7th, 2016 interest deductibility and TFSAs

From our annual Tax Tips guide, here are the tips and suggestions related to Interest Deductibility and Tax-Free Savings Accounts for the year 2016.

Interest Deductibility Tips:

1. Where possible, maximize interest deductions by structuring or arranging your borrowings first for business or investment purposes, and then for personal use.

  • Note that the federal government has abandoned the proposed restrictions on the deduction for interest on funds borrowed to make investments in foreign affiliates.

2. Where certain business or capital property (e.g., shares, but not real estate or depreciable property) is lost or ceases to earn income, the interest incurred on the related borrowed money may in some cases continue to be deductible.

Tax-Free Savings Account (TFSA) Tips:

3. Beginning in 2016, Canadian residents 18 years of age and older can each contribute up to $5,500 annually, plus any unused contribution room from previous years to a tax-free savings account. Going forward, the contribution limit will be indexed to inflation and rounded to the nearest $500.

  • Contributions to a TFSA are not deductible for income tax purposes.
  • Interest on money borrowed to invest in a TFSA is not tax deductible.
  • Contributions to and income earned in a TFSA are tax-free upon withdrawal.
  • You can give money to your spouse for a TFSA contribution, and the income earned on the contributions in your spouse’s TFSA will not be attributed back to you.
  • You cannot contribute more than your TFSA contribution room in a given year, even if you make withdrawals from the account during the year. If you do so, you may be subject to a penalty tax for each month that you are in an excess contribution position.

Our annual Tax Tips can assist you in your tax planning presenting some quick ideas and strategies for you to employ. Please take the time to review your 2016 tax situation and call us for specific recommendations tailored to meet your needs.  We will be pleased to work with you on these and other tax-savings ideas.

Click here to download a full copy of the Tax Tips 2016 Guide (PDF).

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