Tax Free Savings Account

Saving with the Tax-Free Savings Account

inkwellThe Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings programs (RSP) like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).

How the Tax-Free Savings Account Works 

  • As of January 1, 2013, Canadian residents, age 18 and older, can contribute up to $5,500 annually to a TFSA. This is an increase from the annual contribution limit of $5,000 for 2009 through 2012 and effective 2015 it has moved to $10,000 annually.
  • Investment income earned in a TFSA is tax-free.
  • Withdrawals from a TFSA are tax-free.
  • Unused TFSA contribution room is carried forward and accumulates in future years.
  • Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
  • Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
  • Contributions are not tax-deductible.
  • Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
  • Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.



REMEMBER: Like an RRSP, TFSA is NOT and investment but a tax favoured BOX into which you may place selected investment instruments, like a GIC, savings account, mutual or segregated funds bonds, etc.

What are some of the differences between a TFSA and an RRSP?

An RRSP is primarily intended for retirement savings. Tax assistance provided by a TFSA complements that provided through RRSPs.

RRSP contributions are tax-deductible while RRSP withdrawals are added to income and taxed at regular rates.

TFSA contributions are not tax-deductible but the contributions and the investment earnings are exempt from tax upon withdrawal.

Unlike an RRSP, which must be converted to a retirement income vehicle at age 71, a TFSA does not have any minimum withdrawal requirement.

There is no TFSA spousal plan. Individuals can provide funds to their spouse or common-law partner to invest in their TFSA, up to the spouse’s or common-law partner’s available room, and the income earned on the contributed amount is generally not attributed back to the spouse or partner who provided the funds.

The TFSA provides seniors with a tax-efficient savings vehicle to help meet ongoing savings needs, even after they reach age 71 and are required to convert their registered retirement savings into a retirement income vehicle.

Neither the income earned in a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits such as Old Age Security, Guaranteed Income Supplement benefits and the Goods and Services Tax Credit.

Consider consulting your financial adviser before deciding whether to place money in an RRSP or a TFSA or to find out the combination of contributions that is best for your situation.