Tell me more about Tax-Free Savings Accounts

The Tax-Free Savings Account, or TFSA, is possibly the most significant change to how Canadians save since the arrival of the RRSP half a century ago.

Like an RRSP, the TFSA shelters your investments from tax. However, with its more flexible features, the TFSA can help you achieve a variety of short- and long-term goals, from supplementing your retirement savings to taking that dream vacation.

The main benefit of the TFSA is the tax savings you can realize if you hold investments outside an RRSP. With non-registered investments, the taxes you pay on your investment income chip away at your earnings. Sheltering some of these investments in a TFSA will eliminate the tax you would otherwise pay.

This example compares investing under a TFSA versus keeping funds in a regular, non-registered account. Here we use a one-time, $5,000 investment in a 3% GIC assuming a 40% taxation rate.

TFSA vs NON-REGISTERED ACCOUNT*

*Example shown for illustrative purposes only.

In this comparison, a single $5,000 TFSA contribution builds 26% more savings than the same amount held in a regular account after 20 years.

Regardless of the mix of investments you hold and the kinds of investment income you receive, choosing to shelter a portion of your non-registered investments in a TFSA will leave more money in your pocket each year, creating a larger portfolio over time. Although you won't receive a tax deduction for your TFSA contribution, time and compounding still work in your favour.

Here’s how the TFSA works:

• The TFSA is available to Canadians 18 years of age and older.
• Investment income earned in the account is not taxed.
• Much like an RRSP, a range of investment vehicles can be held in a TFSA.
• Up to $5,000 can be contributed for each year between 2009 and 2012. The contribution limit for 2013 and 2014 was $5,500. The contribution limit for 2015 was $10,000. Between 2016 and 2018, the contribution limit is $5,500.
• Unused contribution room can be carried forward indefinitely.
  It is up to you to track your contributions. This information can be found on the Federal TFSA website.
• You can withdraw funds from the TFSA at any time for any purpose although transfers or withdrawals may be restricted based on selected investment terms.
• While contributions are not tax-deductible, tax-free withdrawals can be made anytime.
• Any withdrawals from the plan add to future contribution room, letting you 'replace' whatever you take out.
• Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested benefits and credits, such as the Guaranteed Income Supplement and the Canada Child Tax Benefit.
• Contributions to a spouse’s TFSA are allowed and TFSA assets can be transferred to a spouse upon death.

TFSA Product Page