Tax-Free Savings Accounts

In 2009, the Federal Government introduced a new tax-free saving vehicle for Canadian residents, 18 years of age and older. Eligible Canadians are able to contribute up to $5,500 annually to their Tax-Free Savings Account (TFSA). Savings within this account are able to accrue investment income tax-free!

Contribution Room
Types of Investments
Divorce or Breakup
In Case of Death
Federal Income-Tested Benefits


Any person who meets all of the following criteria is eligible to open a Tax-Free Savings Account:

  1. Resident in Canada
  2. 18 years of age or older
  3. Has a valid Social Insurance Number

Contribution Room

Up to 2012, the TFSA dollar limit was $5,000 per year. However, with the 2013 indexation increase of 2%, the TFSA dollar limit has been recently increased to $5,500. Contributions to the TFSA are not tax deductable. However, investment income and withdrawals from the account are tax-free.

  • Unused Contribution: If you cannot contribute the full $5,500 in a given year, the unused portion of your contribution room will be carried forward to future years. In most cases, you will not lose the contribution room you accumulated over the life of the account. There is no limit to how much contribution room you can carry forward to future years.
  • Withdrawals: Any amounts withdrawn during a year will be added to the contribution room in the following year. It is important to note that you will have to wait until the next year before you can use the newly freed up contribution room.
  • Exceeding Contribution: If you contribute more than your allocated contribution room allows, a 1% tax per month penalty will be levied for each month that the excess remains in the account. The holder of the account is responsible for ensuring that the contribution limit is not exceeded.
  • Transfer to Spouse: In addition to contributing to your own TFSA, you can make contributions to your spouse’s or common-law partner’s TFSA. Any investment income resulting from the funds transferred will not be included in the income of the spouse who made the transfer. The attribution rules do not apply to TFSA.
  • Non-Resident: If you relocate and become a non-resident of Canada, you can still maintain a Tax-Free Savings Account. Your investment income will continue to be exempt from taxation. However, for those years that you are a non-resident, you will not be able to contribute to your Tax-Free Savings Account and will not be able to accrue additional contribution room.
  • Notice of Assessment: Individuals who do not have taxable income and have not filed a tax return, will not receive an annual Notice of Assessment from Canada Revenue Agency. If you are one of these individuals, you should file a NIL T1 Tax Return. This return will enable CRA to issue a Notice of Assessment that confirms the TFSA contribution room.

Types of Investments

Depending on the financial institution, a Tax-Free Savings Account may contain the same arm’s-length investments as a Registered Retirement Savings Plan (RRSP). The types of eligible investments are restricted under the Income Tax Act and include:

  • Mutual funds
  • Publicly-traded securities
  • Credit union shares
  • Bonds
  • Guaranteed investment certificates & term deposits
  • Index-linked term deposits
  • Variable interest savings accounts

A Tax-Free Savings Account may not contain investments in entities with which the account holder does not have an arm’s-length relationship. For example, the account holder cannot be a “specified shareholder”, as defined by the Income Tax Act, where the account holder has an analogous interest of 10% or greater in the entity, together with a non-arm’s length person.

Divorce or Breakup

In cases of a breakdown in a marriage or common-law partnership, an amount may be transferred to a spouse’s or common-law partner’s Tax-Free Savings Account. In this situation, the transfer will not free up contribution room in the transferor’s TFSA and will not be counted against the transferee’s contribution room.

In Case of Death

The deceased individual’s TFSA may be transferred to the spouse or common-law partner. This transfer is not dependant on, and will not change, the survivor’s available contribution room. If the TFSA funds are transferred to an individual other than the spouse or common-law partner, the investment income that is accrued in the deceased individual's account after death, will be taxable.

Federal Income-Tested Benefits

Neither investment income nor withdrawals from your TFSA will affect federal income-tested benefits and credits, such as the Guaranteed Income Supplement (GIS), Canadian Child Tax Benefit, the GST credit, the Age Credit, and Old Age Security benefits.

Compare RRSP, RESP, and TFSA

If you would like to learn more about the Tax-Free Savings Account, give us a call at 1-888-963-2000. You can also visit the Government’s TFSA website. If you want to estimate how much money you could save, visit the Tax-Free Saving Account Calculator.

To open a TFSA, visit your Community Savings branch.