The tax-free savings account, also known as the TFSA, is a creation of the Canadian government designed to be a more flexible version of a personal retirement savings account. There are two important features of the TSFA: first, it can be contributed to and withdrawn from at any time during the account-owner's life after the age of 18. Second, none of the interest or other types of investment income earned in the account can be taxed. The TSFA was established in 2009, and it still uncertain how many uses it will end up having.

Employee Benefits

For companies who have a large number of employees, one of the primary uses for the TSFA is in employee benefits. Employee benefits often include retirement accounts or medical accounts that can be invested in, then withdrawn from for certain medical needs. These accounts usually come with some sort of bonus, such as tax-free investment or tax deductible growth. Although the tax-free savings account is relatively new, it appears to be another account that businesses can use for this purpose. In a TSFA benefit plan, employees would be able to make contributions automatically to a TSFA, where interest would grow tax-free until the employee is ready to use it. The goal for companies is to offer a wide variety of benefit plans that have appeal to a greater number of employees. The better the benefit options, the more high-quality employees will be attracted to the business. TSFAs would probably not be used alone in a benefits plan, but included with other options such as 401K or a retirement savings account, depending on how well the account works with other benefits.

Business Uses

While the TSFA is intended for personal use, if businesses are able to access a tax-free savings account, then they, too, can gain the benefits associated with the program. While contributions cannot be deducted from a TSFA, the interest is not taxed, so the more interest that builds, the more profitable the account will be, as long as money is withdrawn at the proper time, i.e. when tax rates have risen since the money was contributed. If tax rates fall, then a deductible contribution to a retirement account or similar investment would be wiser, but if tax rates rise, then more benefit will be gained by invested in a TSFA, where money can be withdrawn without penalty. You should note that you can only contribute $5,000 per year to a TSFA, so this account may be most useful for people investing to start a small business and looking for a flexible account to store their money. TSFAs also have certain benefits associated with cross-country investment, which can be useful for Canadian businesses with investments in American companies. Dividends can flow from international investments to the TSFAs, then withdrawn without penalty, avoiding some of the fees associated with out-of-country visits.

Source:

Million Dollar Journey: Tax Free Savings Account (TFSA) Canada: Details & Strategies

MSN Money: How tax free savings accounts work

Investopedia: Tax-Free Savings Account - TFSA

More Information:

CRA-ARC: Tax-Free Savings Account (TFSA)