Tax Free Savings Accounts 101

What is the Tax-Free Savings Account (TFSA)?

A Tax Free Savings Account, commonly known as a TFSA is a type of registered investment account in which an individual is able to earn investment income, dividends, and capital gains tax free. This income is also able to withdrawn out of TFSA’s completely tax free.

Who is eligible for a TFSA?

Any Canadian citizen that is the age of majority within his or her province of residence and has a Social Insurance Number.

How much can I contribute to my TFSA?

Since January 1st, 2009 the amount eligible to contribute to a TFSA each year accumulates for each year in which you qualify. The contribution schedule since 2009:

2009               $5,000

2010               $5,000

2011               $5,000

2012               $5,000

2013               $5,500

2014               $5,500

2015            $10,000

2016               $5,500


When can I withdraw funds from my TFSA?

You are eligible to withdraw money at any time from your TFSA. The more contributing factor to this would be the type of investments you own within your TFSA.


After I withdraw money from my TFSA, when am I eligible to re-contribute again?

You’re are eligible to resume contributing immediately to your TFSA as soon as you have eligible room available. However, it is important to note that any money withdrawn from the TFSA must only be re-deposited on January 1st of the following year.

For example, if you have maximized your TFSA and make withdrawal of $8000 you would have to wait until January 1st of the following year before you would be able to replenish the $8000 back to the TFSA.


How do I determine what my eligible TFSA contribution room is for any given year?

CRA determines the amount of TFSA contribution room for every Canadian who is eligible. Every financial institution is required to report all TFSA activity to CRA so that it can be tracked.


What happens if I over contribute to my TFSA?

CRA imposes a tax of 1% per month, for each month or part of a month that the excess contribution remains in the TFSA. The 1% tax will continue until the excess amount is absorbed by the new additional contribution room that occurs every year or when it is withdrawn.


Can I transfer assets from one TFSA to another different TFSA?

Yes, this is done via a TFSA registered transfer form and is completely allowable.


What types of investments are eligible inside a TFSA?

Most investments that are eligible for other registered accounts such as RRSP’s are eligible to be held inside TFSA’s. These include equities (stocks) fixed income securities (bonds), GIC’s and cash. It is not only for interest & savings accounts.

The types of investments you choose should be carefully chosen based on your own individual goals and should support your objectives of your financial plan.


How do TFSA’s differ from RRSP’s?

TFSA’s allow all growth on your investment to be earned tax free just like it would inside an RRSP. The main difference is that an individual does not receive an “RRSP contribution” receipt that can be used to reduce earned income in the year the contribution is made. Also, withdrawals from a RRSP are considered earned income and therefore would be taxed accordingly. Once again TFSA withdrawals are completely tax free.


Can I contribute to my spouses TFSA on their behalf? Who would be taxed on the withdrawals?

No. Not directly. However, money can be gifted to your spouse for contributions to their own individual TFSA. No tax would be liable on the withdrawal whatsoever as your spouse is eligible to make a withdrawal at any time.


Am I able to have more than one TFSA?

Yes, however all TFSA accounts are combined in order to calculate the amount eligible amounts that are able to be contributed. Also, it is wise to consider the administration expenses and effort required to maintain multiple TFSA’s and if it is worth considering for those reasons.

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