Tax-Free Savings Account (TFSA)

A Tax-Free Savings Account (TFSA) is a registered account available to Canadian residents that allows individuals to save and invest money without paying taxes on the income earned from eligible contributions within the account. TFSA contributions are made with after-tax dollars, meaning there is no tax deduction for contributions. Generally, income earned within the account, including interest, dividends, and capital gains, is tax-free.⁴ Withdrawals from a TFSA are also tax-free, making it a flexible savings and investment vehicle for various financial goals such as retirement savings, purchasing a home, or building an emergency fund. TFSA contribution room accumulates annually, and unused contribution room can be carried forward to future years.

The most effective way is to check your current year’s TFSA contribution limit. Go to My Account with the Canada Revenue Agency (CRA) to find your contribution room. TFSA contribution room accumulates over time and any unused room from prior years adds on. If you make withdrawals, those amounts are added to the following year’s contribution room. If you were 18 or older in 2009, you are eligible to open a TFSA and your contribution room has accumulated every year since then, provided that in each year since 2009 you continued to be a resident of Canada.

If you exceed your contribution limit, the excess contribution will be subject to a penalty of 1% per month each month the excess contribution remains in the account (this rate is current as of May 1, 2024).^1,2

It’s crucial to monitor both withdrawals and contributions carefully to avoid penalties.

In the event of the death of a TFSA holder residing in Ontario, applicable legislation recognizes beneficiary and successor holder designations either on the TFSA contract or in the holder’s will. A TFSA holder has the option to designate one or more beneficiaries, including their spouse or common-law partner, to receive TFSA proceeds upon the holder’s death.

Upon the death of the holder, if the beneficiary spouse or common-law partner was designated as the successor holder, the TFSA contract continues under the name of the surviving spouse or common-law partner.

Your investment income in TFSA, which includes interest, dividends, and capital gains, enjoys significant tax advantages by remaining tax-free, provided you adhere to your contribution eligibility and limits.^1,2

Tax-free savings account (TFSA) has the following benefits:

• Tax-free growth. Income generated within a TFSA, such as interest, dividends, and capital gains, benefits from tax-free growth.^1,2
• Flexibility. You can withdraw your money from a TFSA at any time for any purpose, tax-free.^2,3
• No impact on government benefits. TFSA withdrawals do not affect eligibility for federal income-tested benefits and credits, including Old Age Security (OAS) and the Canada Child Benefit (CCB).¹
• Carry-forward contribution room. The unused TFSA contribution room is not lost but accumulates, allowing for increased contributions in future years.¹
• Investment options. TFSAs are versatile and capable of holding various investment types, including savings accounts, GICs, mutual funds, stocks, bonds, and ETFs, catering to diverse financial strategies and goals.^1,3

You can have multiple TFSA accounts, but your total contributions cannot exceed the limit, which is based on a maximum amount set per person, not per account.

In your TFSA, you can diversify your portfolio with a variety of investment options tailored to meet your investment goals, including:^1,3

• Cash
• GICs (Guaranteed Investment Certificates)
• Mutual Funds
• Stocks
• Bonds
• ETFs (Exchange-Traded Funds)

To withdraw funds from your TFSA, please visit any of our branches.

You can withdraw funds from TFSA without penalties.^1,3

It’s also tax free and can be done at any time for any purpose without penalty.^1,3,4

This flexibility is one of the key advantages of TFSAs compared to any other type of registered account like RRSPs (Registered Retirement Savings Plans), which may incur taxes or penalties upon withdrawal for certain purposes.

Generally yes, you can re-contribute funds withdrawn from your TFSA to help reach your goals.¹ When you withdraw from your TFSA, the amount is added to your maximum contribution room at the start of the next calendar year. This allows you to recontribute the withdrawn amount plus your annual maximum contribution limit, helping you move closer to your goals without penalties or affecting your current year’s contribution room. However, to avoid surpassing your contribution limit and incurring penalties from the Canada Revenue Agency (CRA), it’s crucial to wait until the next year to recontribute the withdrawn funds.

A TFSA and an RRSP (Registered Retirement Savings Plan) both have tax advantages for every Canadian resident. The key differences between them are:

Tax treatment: 

TFSA contributions are made with after-tax dollars and these contributions are not tax-deductible.¹ Any income earned within the account, including interest, dividends, and capital gains, is tax-free.² Withdrawals from TFSA are tax-free.

RRSP contributions are made with pre-tax dollars, meaning your taxable income for the year is reduced. Any income earned within RRSP is tax-deferred, meaning you will pay taxes on withdrawals in retirement when the applicable income tax rate may be lower.

Contribution limits 

TFSA contribution limits are set by the Government of Canada annually and accumulate over time. The unused contribution room can be carried forward indefinitely.¹

RRSP contribution limit is based on your earned income and is calculated as a percentage of your previous year’s income, up to a maximum limit. Though the unused contribution rooms may be carried forward, there is a limit on how much you can contribute over your lifetime. This limit is called the RRSP deduction limit.

Withdrawal Rules

Withdrawals from a TFSA are tax-free, penalty-free, and can be made anytime, with withdrawn amounts restored to your contribution room the next year.^1,3,4

Withdrawals from an RRSP are taxed as income, except for specific programs like the Home Buyers’ Plan (HBP) and Lifelong Learning Plan (LLP), which permit tax-free withdrawals for certain uses.

Purpose

TFSAs are flexible savings and investment vehicles designed to help you meet your savings plan, whether for short-term goals like vacations and emergency funds or long-term aspirations such as retirement and home purchases.

RRSPs are primarily designed to help you reach your savings goals for retirement. Contributions to an RRSP are subject to rules regarding when and how withdrawals can be made.

No, unlike RRSPs which stop allowing contributions at a designated age, TFSAs have no maximum age limit. As long as you have contribution room and are eligible to contribute, an eligible TFSA holder can contribute to the TFSA.¹

If a TFSA holder is no longer a resident of Canada for tax purposes, the TFSA may remain open; however, the individual is ineligible to make TFSA contributions while a non-resident. The holder can contribute up to their maximum contribution limit until the date they became a non-resident of Canada.¹

If a non-resident holder makes a contribution, they are subject to a 1% per month penalty tax on the contribution amount. If this contribution results in an excess TFSA amount, the excess is subject to an additional tax of 1% per month.¹