back to news icon Back to the news

Everything You Need to Know About the Tax-Free Savings Account

ON April 18, 2019

Tax-Free Savings Account

When you are looking for a way to save a few bucks, you may come across the option of a Tax-Free Savings Account (TFSA), but not really know what it is or how it works. Though the name does essentially give it away, you may wish to know a little bit more, and we will aim to answer any questions below.

What is a Tax-Free Savings Account?

The TFSA first appeared on the scene in 2009 as a new, flexible way for Canadians to save money. Any money deposited to a TFSA is considered non- taxable. This includes interest and capital gains that you earn through the account.

How Does a TFSA Work?

Provided you are a Canadian aged 18 years or more with a valid Social Insurance Number, you will be able to open a TFSA. If you are a non-resident, you are still able to open a TFSA, but most likely will face a 1% penalty on any contributions made during the period you remain a non-resident of Canada.

Saving with a TFSA vs an RRSP

While both the TFSA and RRSP are popular options for saving, there are some differences. An RRSP, for example, requires that you earn income, which then provides you with contribution space that can be filled with investments. Making contributions to your RRSP offers a tax deduction by reducing your net income. A TFSA on the other hand, does not require that you be earning an income to make contributions, nor does it offer any tax deductions.

Making Contributions to a TFSA

There is a limit to what you can contribute to your TFSA, with the maximum amount being referred to as the TFSA contribution room. Any contributions made to your TFSA over the course of the year count toward this maximum, with the exception of a direct transfer form one TFSA to another. Any contribution that brings you over this limit are subject to a 1% penalty per month for as long as your contributions are above-limit.

As a registered TFSA account holder, you are only permitted to contribute to your own accounts, though if your spouse or child is not contributing the maximum amount on their own TFSA accounts, you can give them money to contribute to their accounts without the income being attributed to you. But keep in mind that investments given to a spouse or child may incur taxable capital gains.

As mentioned above, the TFSA has a maximum amount that can be contributed in a single year. From the time TFSAs launched in 2009, any Canadian that qualifies started accumulating contribution space, whether a TFSA had been opened or not.

From 2009 to 2019, the limit was $5,000. In 2013, 2014, and 2016 to 2018, the limit was $5.500. In 2015, $10,000 was the maximum, and for 2019, it will be $6,000. This means that in 2019, if you have never contributed to a TFSA, you could contribute $63,000, even as a lump sum. If you have made contributions and are uncertain of your TFSA limit, there are three ways to find out:

  • If you turned 18 in a year following 2009, you may calculate the maximum using the figures above, or simply consult the CRA site. Simply add together the maximum contribution for each year from the time you turned 18. Subtract any previous contributions. And if you have withdrawn funds from your TFSA, you may add that back in. This will give you your current maximum allowable.


  • You may also log into the CRA site from your computer, or us the CRA app on your smartphone.


  • You ma also simply call the CRA’s Tax Information Phone Service (TIPS) at 1-800-267-6999. Before calling, be sure to have all necessary documents on hand.

A Tax-Free Savings Account can be a great way to save some money each year once you know how to take full advantage of it.








Share this post
Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone
Contact us to setup an appointment