What is a TFSA (Tax Free Savings Account)?

A TFSA is a type of investment account that encourages Canadians who’re 18 or older (with a valid social insurance number) to save money and earn interest tax-free. Ideal as a short-term savings strategy, TFSAs are more flexible than other savings programs because they allow you to withdraw money from the account when you need it and repay it when you’re able to. The best part is, the contributions you make and any income that you earn in the account (from say, interest or dividends) are exempt from tax even when you withdraw them.

Note: The amounts you contribute to your TFSA and any related administrative costs can’t be deducted on your tax return.

Each year, the amount you can contribute to your TFSA is determined by your TFSA contribution room which is made up of:

  • Your TFSA dollar limit
  • Any unused TFSA contribution room from previous years and
  • Any withdrawals made from your TFSA in the previous year

Since the program began in 2009, the annual TFSA contribution limits have been as follows:

  • 2009 to 2012: $5,000
  • 2013 and 2014: $5,500
  • 2015: $10,000
  • 2016: $5,500
  • 2017: $5,500
  • 2018: $5,500
  • 2019: $6,000
  • 2020: $6,000
  • 2021: $6,000
  • 2022: $6,000
  • 2023: $6,500
  • 2024: $7,000

Haven’t opened a TFSA yet? Don’t worry, you haven’t missed out. If unused, your contribution room accumulates each year; as of 2024, the cumulative total is $63,500.

Before you open your TFSA and start making contributions, you’ll need to first determine your contribution room; any contributions that are over your allowable contribution room are subject to a tax. You can determine your contribution room by logging in to the Canada Revenue Agency (CRA) My Account (registration required), or by calling the CRA at 1-800-267-6999.

While you aren’t allowed to contribute to your spouse or common-law partner’s TFSA, you can give them money to contribute to their own account without reducing your own contribution.

If you withdraw money from your TFSA, you can replace it in the same year as long as you still have contribution room available for the year. If you don’t, the withdrawn amount will be added to your TFSA contribution room at the beginning of the following year.

You bet! Much like a registered retirement savings plan (RRSP), your TFSA contributions can be invested. The following is a list of investment types that are permitted to be held within your TFSA:

  • Cash
  • Mutual funds
  • Securities listed on a designated stock exchange
  • Guaranteed investment certificates (GICs)
  • Bonds
  • Certain shares of small business corporations

For more information on the types of investments permitted within your TFSA, refer to the CRA website.

While interest, dividends, or capital gains earned on investments in a TFSA aren’t taxable in the account or when they’re withdrawn, you might have to pay tax with respect to your TFSA in the following situations:

  • Your contributions for the year exceeded your contribution room
  • You contributed to your TFSA while you were a non-resident of Canada
  • The trust governed by the TFSA held a non-qualified or prohibited investment at any time during the year
  • You received an advantage (a benefit, loan or debt that depends on the existence of a TFSA) in relation to your TFSA