Tax-Free Savings Account (TFSA)

A TFSA is a registered, flexible investment savings option that lets you earn tax-free investment returns. TFSAs were introduced by the federal government in 2009.

Canadian residents aged 18 and older with a Social Insurance Number can open a TFSA. There is no maximum age limit. In the year an eligible individual turns 18, they can contribute up to the full TFSA dollar limit for that year.

• Contributions to a TFSA are not tax deductible.
• Withdrawals from a TFSA are tax-free and do not result in lost contribution room (however, re-contributing in the same year may result in an over-contribution and a penalty tax – it is typically best to wait and re-contribute in the following year).
• You don’t need earned income to accumulate TFSA contribution room – a fixed limit is determined annually by the federal government and available to all eligible TFSA holders.
• There is no requirement to convert the TFSA to an income payment option (like an RRSP).

• You have a significant savings goal like a down payment on a home, a new car, a wedding, etc.
• You want to start saving regularly but have an income of less than $50,000 a year. In these circumstances, a TFSA may be a better option.
• If your salary might increase soon – use a TFSA now to park your savings while you build RRSP contribution room for later, when you’ll get greater tax benefits (due to moving into a higher tax bracket).
• You usually max out your RRSP contribution room or you are retired and have excess retirement income funds and you need another option for tax-sheltered savings.

There are no restrictions. TFSA savings can be used any time for a variety of purposes like a down payment on a home, a new car, wedding, home renovations, retirement, vacation or starting a small business.

Investment options include a savings account, GICs, mutual funds, stocks, and bonds. You can also arrange automatic contributions to help your tax-free savings grow.

The annual dollar limit is determined by the federal government and indexed to inflation. If you were 18 or older in 2009 (when TFSAs were introduced), your TFSA contribution room has grown each year, even if you did not file an income tax return or open a TFSA. If you turned 18 after 2009, your TFSA contribution room started in the year you turned 18, and your TFSA contribution room has accumulated every year since.

You can have more than one TFSA at any given time, but the total amount you contribute to your TFSAs cannot be more than your available TFSA contribution room for that year. It is your responsibility to know how much contribution room you have available.

A penalty will be assessed by the Canada Revenue Agency of 1% per month on your excess contribution.

The Canada Revenue Agency will determine the TFSA contribution room for each eligible individual based on information provided by you and your TFSA issuers. Your TFSA contribution room will be indicated on your personal income tax Notice of Assessment or reassessment.