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February 15, 2009

Tax-Free Savings Account (TFSA) ( Canada)



A savings vehicle which allows Canadian residents to save for miscellaneous expenses on a tax-free basis. The TFSA is available to all individuals regardless of income levels, providing the individual is at least 18-years old.

The maximum amount that can be added to a TFSA is $5,000 each year. However, if an individual contributes less than $5,000 in any year, the unused portion of the $5,000 limit can be applied in subsequent years.

TFSAs are effective for years beginning 2009


Referring Cite

Canadian Department of Finance

Additional Helpful Information

  • Contributions are flexible and discretionary, which means individuals can contribute from zero dollars to $5,000 for any year
  • Contributions are not deductible, unlike contributions to a Registered Retirement Savings Plan (RRSP) which are deductible and result in a reduction of the individual’s taxable income.
  • Earnings accumulate on a tax-free basis. This is unlike an RRSP, where earnings are tax-deferred, and taxable as ordinary income when withdrawn.
  • Withdrawals can be made at anytime and for any purpose. This is unlike an RRSP, for which the funds are intended to be used for retirement purposes
  • Individuals who make withdrawals from their TFSAs can return those funds to their accounts. These returned funds do not affect their $5,000 TFSA annual limit.
  • Spousal TFSA contributions are permitted, i.e. an individual can make contributions to a TFSA on behalf of his/her spouse. Individuals can also make contributions to the accounts of their common-law partners.
  • TFSA balances can be transferred to the TFSA of a surviving spouse , ( naturally) after the death of the TFSA owner.
  • TFSA contributions and withdrawals do not affect an individual’s  federal income-tested benefits and credits.
  • There is no maximum age limit for adding to the TFSA
  • Unlike RRSPs where individuals are required to begin withdrawals at age 71, individuals need not withdraw the TFSA balance unless they want to do so.

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