Tax-Free Savings Accounts (TFSA)

TFSAs were introduced in 2008 and became available for purchase in 2009.  TFSAs provide any person who files a tax return in Canada with the ability to invest in a variety of investments and achieve tax-free growth. These investments include Guaranteed Investment Certificates (GICs), mutual funds, segregated funds, annuities, Exchange-Traded Funds (ETFs), and stocks and bonds that are listed on an exchange.

A maximum contribution of $5,500 is allowed in 2013, and over time it is anticipated that the contribution limit will increase. The funds in the account can be withdrawn at any time tax-free. Even if contributions are not made to the account in a year, the difference between your maximum allowable contribution and your actual contribution (even if zero) can be carried forward every year. This amount is called an individual’s annual “contribution room” and is similar to the way RRSP contribution room is carried forward.

Withdrawals from TFSAs are not added to one’s taxable income.

Investors can contribute the maximum amount to a TFSA every year and enjoy the benefits of tax-deferred growth and tax-free withdrawals.

Many types of investments are eligible for the TFSA. Some investors and advisors consider holding more aggressive investments within the TFSA, such as stocks and mutual funds and the capital gains they generate, because such returns can be received on a tax-free basis. However, the decision about the type of investments to hold in the TFSA is a personal one, and investors should stick within their zone of risk tolerance and investment objectives.

What You Need To Know About the TFSA

  • All Canadian citizens and residents who have filed a tax return can open a TFSA if they are 18 or older.
  • Income earned in the TFSA is not taxable regardless of whether it is in the form of interest, dividends, or capital gains.
  • A variety of investments can be held in the TFSA, including GICs, mutual funds, savings accounts, and other types of investments.
  • Unlike RRSP contributions, the funds contributed to the TFSA are not deducted from your income for income tax purposes.
  • Contribution room is not lost if you do not make the maximum annual contribution. The unused contribution room is carried forward to future years.
  • Money withdrawn from the TFSA does not affect the contribution room in future years. Any funds withdrawn can be deposited back to the TFSA the following year or subsequent years, in addition to the contribution room for that year.
  • Individuals can hold more than one TFSA; however, the sum of the contributions cannot exceed the $5,500 per year maximum or the contribution limit in that year.
  • There are no attribution rules, so you can contribute to your spouse’s or partner’s plan, or your spouse to your plan, without the deposit being “attributed” to whomever makes the contribution with the tax that is applied to attributed income.
  • Fees and administration costs are charged to TFSA accounts and vary widely.  

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