Have a few questions?
We’ve provided answers to some of the most common questions people have about TFSAs. Take a look below to find helpful information.
About TFSAs
A Tax-Free Savings Account (TFSA) is a registered savings account regulated by the federal government. Through a TFSA, you can put your savings into eligible investments and not pay tax on the investment income you earn.
The idea behind TFSAs is to make the benefits of tax-free savings available to as many Canadians as possible. For that reason, TFSAs are available to every Canadian resident who is 18 years of age or older and has a Social Insurance Number (SIN).
However, to open a TFSA at TD Canada Trust, you must have achieved age of majority in the province in which you live. So, if you live in British Columbia, Newfoundland and Labrador, Nova Scotia or New Brunswick, then you can’t actually open a TFSA until you are 19, which is the age of majority in those provinces. However, you will accumulate contribution room from the time you are 18.
An RSP is designed specifically to provide you with income after you retire. Your contribution limit is based on your income and the contributions you make are tax-deductible, but you do pay tax on the money when you receive it as income.
A TFSA is not designed specifically for retirement, but to help you save money for a wide range of goals. The amount you can contribute is not based on your income and your contributions are not tax-deductible. You can withdraw your money any time you want it5, and you don’t pay tax on those withdrawals. You also don’t lose contribution room when you make a withdrawal – you can re-contribute the amount withdrawn to your TFSA in the following year or any year after that.
There is no deadline for contributions to a TFSA, and your unused contribution room is carried over indefinitely. If you’re thinking of making a withdrawal closer to the end of the year, be sure to do it by December 31st to have that withdrawal amount added back to your contribution room the next year.
You can open as many as you like, but the combined maximum annual contribution remains at $5,5001 per year for all of your TFSA accounts.
The Tax-Free Savings Account is a savings plan that is registered with the Canada Revenue Agency (CRA). In order to properly register your plan, the following information has to match the information that CRA has on file for you:
- Your full name
- Social Insurance Number, and
- Date of Birth
To ensure we have up to date information, please bring the following documents with you in addition to your valid photo identification:
- SIN Card /Letter (Service Canada began to issue SINs in paper format as of March 31st, 2014 and no longer issues a plastic SIN card)
- CRA Notice of Assessment (most recent)
Contributions
The TFSA contribution limit for 2016 is $5,5001. You can also carry forward any unused contribution room from previous years. Annual contribution limit from 2009 to 2012 was $5,000. Annual contribution limit from 2013 to 2014 was $5,500. Annual contribution limit for 2015 was $10,000.
1 Annual contribution limit for 2016. Annual contribution limit from 2009 to 2012 was $5,000. Annual contribution limit from 2013 to 2014 was $5,500. Annual contribution limit for 2015 was $10,000. Annual TFSA contribution limit is subject to change by the federal government
You can carry forward any uncontributed amounts into future years indefinitely. So, for 2016, you can contribute up to $5,500 (annual contribution limit for 20161) PLUS any unused contribution room from previous years. Annual contribution limit from 2009 to 2012 was $5,000. Annual contribution limit from 2013 to 2014 was $5,500. Annual contribution limit for 2015 was $10,000.
1 Annual TFSA contribution limit is subject to change by the federal government.
The Canada Revenue Agency (CRA) reports this amount to individuals through the “My Account” function on the CRA web site.
If you contribute more than your contribution limit, you will pay a penalty of 1% per month on the excess amount.
No, you can’t contribute directly to your spouse’s TFSA as you can with a spousal RSP. However, you can give your spouse money, which they can then contribute to their own TFSA. Any income your spouse earns on the money in their TFSA is theirs and will not be attributed back to you.
Even if you’re not using it right away, you can carry forward any un-contributed amounts into future years indefinitely. So, 10 years from now, you’ll have all of that unused space available to you.
Withdrawals
You can withdraw funds from your TFSA any time you want1 – you don’t have to reach a certain age before you withdraw your money.
1 Some restrictions may apply, depending on the investments chosen.
No, you don’t have to pay tax on the amounts you withdraw. Because TFSA withdrawals don’t count as taxable income, they don’t affect Federal income-tested benefits or tax credits you may receive, including the Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit and the Age Credit. TFSA withdrawals also won’t reduce benefits based on your income level, such as Old Age Security, the Guaranteed Income Supplement and Employment Insurance benefits.
Anything you want. You could wait until you retire and use it to supplement retirement income you have from pensions, RSPs or other sources, but you can also use it for short-term savings goals like a new car or a vacation, or for needs that arise suddenly like repairs to your home.
No, you never lose your contribution room – in fact, you can recontribute amounts you have withdrawn. You have to wait until the next year to recontribute, but you can carry forward the recontribution room indefinitely. For example, say you contribute $5,0001 to your TFSA in January 2012 and another $5,500 in January 2010. Then, in the summer of 2013, you withdraw $3,000 to pay for some repairs to your home. You can’t recontribute that $3,000 in 2013, but in 2014 it will be added to your contribution room again.
1 Annual contribution limit from 2009 to 2012 was $5,000. Annual contribution limit from 2013 to 2014 was $5,500. Annual contribution limit for 2015 was $10,000. Annual TFSA contribution limit is subject to change by the federal government. Excess contributions to a TFSA will be subject to a penalty tax of 1% per month based on the highest excess TFSA amount in that month. The penalty will be calculated on a monthly basis until the excess amount is withdrawn.
No. Your TFSA plan is meant to be used to help you save for short to medium savings goals, and the account benefits of saving your money tax-free can only be realized when you earn interest or capital gains. It is also important to understand that using your TFSA as a chequing account can lead to over contributions which are subject to penalties. As your TFSA plan has an annual contribution limit, you may need to wait until the next year to recontribute. In addition, you are not able to order cheques for your TFSA plan. See question "Once I've withdrawn my money, is that contribution room lost?"
Taxation
No, you don’t pay any tax on the investment income you earn in the account, and you don’t pay income tax on the amounts you withdraw.
No, you can’t deduct contributions to your TFSA from your income as you can with your RSP contributions.
Unlike your RSP, withdrawals from your TFSA are not taxable and they are not included as part of your income.
Investments
You can hold many of the same investments you hold in your RSP in your TFSA, including mutual funds, GICs, stocks and bonds.
Note: The above information about the Tax-Free Savings Account is based on the information currently available from the Canadian government. To learn more or to check for updates, visit the TFSA information page on the Canada Revenue Agency website.
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