The TFSA has existed since 2009. It’s a way to save money tax-free so you can achieve your personal goals (buying a home or car, saving for retirement, etc.). To open one, you must be at least 18 years old and have a valid social insurance number.

Contribution rules

TFSA contributions are limited

Provided that you’re 18 years old, you’ll accumulate new contribution room every year. You therefore cannot contribute before the age of 18. This amount can vary from one year to the next.If you don’t use it, you can do so later on.

Contributions - Annual limits

2009  

$5,000

2010

$5,000

2011

$5,000

2012

$5,000

2013

$5,500

2014

$5,500

2015

$10,000 

2016

$5,500  

2017

$5,500

Insight

Example of cumulative maximum contribution

  • A person born before 1991 (who was 18 or older in 2009) could accumulate a maximum of $ 52,000 by the end of 2017:
    5,000 + 5,000 + 5,000 + 5,000 + 5,500 + 5,500 + 10,000 + 5,500 +5,500 = $ 52,000
  • A person born in 1994 (who turned 18 in 2012) could accumulate a maximum of $ 37,000 by the end of 2017:
    5,000 + 5,500 +5,500 +10,000 +5,500 +5,500 = $ 37,000
End of the insight

Money can be withdrawn from the TFSA and then put back the following year. This means your contribution room is never lost.

For example:

  • You’ve accumulated $20,000 in your TFSA.
  • You withdraw $7,000 to go on a trip.
  • As of the following year, you can put the $7,000 back in your TFSA (in addition to the maximum amount allowed for the year).

Money can be withdrawn from the TFSA and then put back the following year

  • This means your contribution room is never lost.
  • For example:
    • You’ve accumulated $20,000 in your TFSA.
    • You withdraw $7,000 to go on a trip.
    • As of the following year, you can put the $7,000 back in your TFSA (in addition to the maximum amount allowed for the year).

Advantages of the TFSA

  • The income generated in your TFSA is not taxable. You therefore save on taxes and can accumulate more money than if you invest outside a registered account.

    For example:
    • You invest $5,000 in a guaranteed investment certificate (GIC)A guaranteed investment certificate (GIC), also called a certificate of deposit or term deposit, is a security indicating that an investor has lent money to a financial institution. GICs earn interest.  within your TFSA.
    • The certificate earns 2% per year. After 5 years, your total earnings are $520. You’ve now accumulated $5,520.
    • Since the money is invested in your TFSA, you don’t pay any tax on the $520.
    • If the GIC weren’t in your TFSA or other registered account, you would have paid tax every year on your investment income. With a marginal tax rateThe marginal tax rate is a percentage of tax to be paid; it is not calculated on total income (unlike the tax rate), but only on the last dollar earned.

      It answers the question: “If I had earned $1 more, how much additional tax would I have paid?”  
      of 38.4%, you would have accumulated $5,316, or $204 less.
    • When you want to withdraw your money from your TFSA (whether it’s your contribution amounts or the investment income), you won’t pay any tax on it.

Who can benefit from a TFSA?

  • A TFSA could be appropriate for anyone who has investments outside a registered plan.
  • It’s suitable for people with a modest or high income. 
Warning

Costs incurred

There may be certain fees associated with a TFSA. Check with your financial institution before opening an account.

End of the warning

RRSP or TFSA: Which one to choose?

Neither option is better than the other. Each has its advantages and drawbacks, as explained in the table below.

TFSA-RRSP comparisontable

FeaturesTFSARRSP

Tax deductible contributions

No, but the money you withdraw from a TFSA isn't taxable.

Yes, but the accumulated money will be added to your income when you withdraw it.

Withdrawals

  • Whenever you like
  • Non-taxable
  • Whenever you like
  • Taxable

Minimum age

As of age 18

 
  • No minimum age
  • As soon as you report income, you build contribution room.

Contribution amount

See the Table of TFSA contribution limits

 
  • 18% of your income (up to maximum of $26,010 in 2017 and $26,230 in 2018), minus the pension adjustment indicated on your T4 slip issued by the Canada Revenue Agency.
  • Unused contribution room can be used in subsequent years.

Cumulative contributions (unused contribution room can be added in subsequent years)

Yes

Yes

Over contribution

Monthly penalty of 1%of the amount in excess of the limit

Monthly penalty of 1%of the amount in excess of the limit

Qualified investments

The same as for an RRSP, except for labour-sponsored funds (which can't be put in a TFSA).

 
  • Guaranteed investment certificates (GICs)
  • Stocks (shares)
  • Bonds
  • Mutual funds
  • Labour-sponsored funds
  • Etc.

Spousal plan contribution

No, but you can give your spouse the money to contribute to their TFSA.

Yes, however you, andnot your spouse, will benefit from the tax deduction.

Investment incomeInvestment income is the money that an investor earns through their investment. This money can be in the form of interest, a capital gain, etc.

Non-taxable

Non-taxable. However, RRSP withdrawals are taxable.

Option of putting back withdrawn amounts

Yes.
You can put the withdrawn amounts back in your TFSA if you wish, but you can do so only as ofthe following year.

 

No, except if the withdrawal is made under the Home Buyers' Plan (HBP), the  Lifelong Learning Plan (LLP) This link will open in a new window, or similar plans.

Cumulative contributions

Yes. If you don't contribute in a given year, you runused contribution room can be used in subsequent years.

Yes. Unused contribution room since 1991 is carried forward. You could therefore contribute the amountsat a later date.

Institutions offeringthe product

Same as for RRSPs

Most financial institutions, such as banks, credit unions, trust companies, life insurance companies and mutual fund firms.

Opening several accounts with various institutions

Same as for RRSPs

Yes.
The contributionlimit applies to the total amount held in all institutions.

Therefore, if youhave $10,000 in available contribution room, you are entitled to contribute $10,000 in total, not $10,000 per institution.

 

Borrowing to contribute

Yes. However, the interestInterest is a percentage of an amount, paid at a given frequency (for example, 2% per year). It is paid by the borrower to compensate the investor for lending them the money.

When an investor deposits money in their account at the bank, the bank uses it for other purposes. The investor therefore lends their money to the bank, which compensates the investor by paying them interest.  
on the loan isn't tax deductible.

Also, there is no tax refund to help you repay the loan.

Termination

Upon the death of the account holder.

On December 31 of the year in which you turn 71.

At that point, you can transfer the holdings to a Registered Retirement Income Fund (RRIF)Un fonds enregistré de revenu de retraite est un régime qui permet à son titulaire de reporter l'impôt sur les revenus de placements. Les sommes qui sont placées dans un FERR proviennent habituellement d'un REER.

Contrairement à un REER, le titulaire d'un FERR est obligé de retirer un montant minimal à chaque année (comme pour le CRI).

Comme pour un REER, les sommes retirées sont imposables.
, purchase an annuityAn annuity is a contract that allows you, once you have paid a certain amount, to receive periodic payments over a given period of time. There are several types of annuities, including:

Annuity certain
Deferred annuity
Guaranteed annuity
Indexed annuity
Life annuity
Etc.
or withdraw thefunds from your RRSP.