The TFSA program began in 2009. It is a way for individuals who are 18 years of age or older and who have a valid social insurance number (SIN) to set money aside tax-free throughout their lifetime.

Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.

Administrative or other fees in relation to a TFSA and any interest on money borrowed to contribute to a TFSA are not tax-deductible.

Types of TFSAs

There are three types of TFSAs that can be offered: a deposit, an annuity contract, and an arrangement in trust.

Banks, insurance companies, credit unions, and trust companies can all issue TFSAs.

For more information about a certain type of TFSA, contact a TFSA issuer.

Who can open a TFSA?

Any individual that is a resident of Canada who has a valid SIN and who is 18 years of age or older is eligible to open a TFSA.

You cannot open a TFSA or contribute to one until you turn 18. However, when you turn 18, you will be able to contribute up to the full TFSA dollar limit for that year.

In certain provinces and territories, the legal age at which an individual can enter into a contract (which includes opening a TFSA) is 19. In this case, when the individual turns 19 and is able to enter into a contract in that jurisdiction, the TFSA contribution room for the year an individual turns 18 is carried over to the following year.

TFSA contribution room

Your TFSA contribution room is the maximum amount that you can contribute to your TFSA.

Only contributions made under a valid SIN are accepted as TFSA contributions.

If you were 18 or older in 2009, your TFSA contribution room grows each year even if you do not file an Income Tax and Benefit Return or open a TFSA.

If you turned 18 after 2009, your TFSA contribution room starts in the year you turned 18 and your TFSA contribution room accumulates every year after that year.

Investment income earned by, and changes in the value of your TFSA investments will not affect your TFSA contribution room for current or future years.

  • The annual TFSA dollar limit for the years 2009 to 2012 was $5,000.
  • The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
  • The annual TFSA dollar limit for the year 2015 was $10,000.
  • The annual TFSA dollar limit for the year 2016 to 2018 was $5,500.
  • The annual TFSA dollar limit for the year 2019 and 2020 is $6,000.
  • The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.

Types of permitted investments

Generally, the types of investments that are permitted in a TFSA are the same as those permitted in a registered retirement savings plan (RRSP). These would include the following types:

  • cash
  • mutual funds
  • securities listed on a designated stock exchange
  • guaranteed investment certificates
  • bonds
  • certain shares of small business corporations

Withdrawals from a TFSA

A qualifying transfer from one TFSA to another is not considered to be a withdrawal.

Making withdrawals

Depending on the type of investment held in your TFSA, you can generally withdraw any amount from the TFSA at any time. Withdrawing funds from your TFSA does not reduce the total amount of contributions you have already made for the year.

Withdrawals, excluding qualifying transfers and specified distributions, made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year.

Impact on your government benefits and credits

Your federal income-tested benefits and credits such as: Old Age Security (OAS) benefits, the Guaranteed Income Supplement (GIS), or Employment Insurance (EI) benefits will not be reduced as a result of the income you earn in your TFSA or the amount you withdraw from your TFSA.

The income earned in the account or amounts withdrawn from a TFSA will also not affect your eligibility for federal credits, such as the Canada child benefit (CCB), the Canada workers benefit (CWB), the goods and services tax/harmonized sales tax (GST/HST) credit, or the age amount. You can withdraw money from the TFSA at any time, for any reason, with no tax consequences, and without affecting your eligibility for federal income-tested benefits and credits.

Tax payable on TFSAs

Generally, interest, dividends, or capital gains earned on investments in a TFSA are not taxable—either while held in the account or when withdrawn.

There are, however, certain circumstances under which one or more taxes may be payable with respect to a TFSA. The following sections provide information and examples of when and how these taxes are payable, and by whom.

Normally, in most TFSA situations, there is no tax payable, and therefore, a TFSA return is not required; however, where one or more of TFSA taxes are payable, a TFSA return must be filled out and sent by June 30 of the year following the calendar year in which the tax arose.

For more information on TFSA, please visit the website.