Tax Free Savings Account (TFSA)

What is a TFSA?

A TFSA is not a traditional savings account. It’s a type of plan that allows you to earn many types of investment income tax-free (including capital gains). A TFSA can help you save for a large purchase or supplement your retirement savings plan when you've maxed out your RRSP.

How do you contribute to a TFSA?

  • The maximum annual contribution limit is determined by Canada Revenue Agency each year. The annual contribution limit started at $5,000 in 2009 when the TFSA was first introduced. This amount is indexed to inflation and rounded to the nearest $500 on a yearly basis. Check the Canada Revenue Agency website for this year’s annual contribution limit.
  • Any unused contribution room is carried forward to future years.
  • Contributions are not tax deductible.
  • Income, losses and capital gains are not included in taxable income.

Who is Eligible?

  • Any resident of Canada who is 18 or older, and has filed an income tax return is eligible to contribute.
  • You can have more than one TFSA, but the maximum allowable contribution amount applies to the total of all TFSAs you hold.
  • There is no spousal TFSA, but you can give money to your spouse to contribute to his or her own TFSA.
  • Unlike an RRSP, you can contribute to a TFSA even if you haven’t earned income.

How to withdraw from a TFSA?

  • Increase contribution room by the same amount in the following year
  • Do not affect eligibility for federal income-tested benefits and credits such as Canada child tax benefit, working income tax benefit, GST credit and old age security benefits
  • Are not included in taxable income
  • Can be made at any time and for any purpose

For more information on TFSAs, contact your MDL Advisor.