Tax-Free Savings Account (TFSA)

The amount you are allowed to deposit into a TFSA is called your "contribution room". It begins accumulating from the time you turn 18 and are a resident of Canada. This is regardless of whether you've opened a TFSA.

Any contribution room that hasn't been used, can be carried forward. As an example, if you were 18 years in 2009, and a Canadian resident, and you opened a TFSA for the first time in 2024. Your contribution room would be $95,000.

If you haven't used your contribution limits and you have made withdrawals from a TFSA, these amounts get carried over to the following year, beginning January 1.

All earnings, capital gains in your TFSA are tax-free. This is also true of withdrawals; you won't pay any taxes on any withdrawals you make.

Note that money you will deposit into a TFSA is an "after-tax" contribution. This means the money being deposited has already been taxed. So contributions do not count as tax deductions; it will not reduce your taxable income. This is different to RRSP contributions which are tax deductible.

You may choose to move funds or investments between TFSAs, or perhaps you want to switch to a different provider. This is entirely possible but must be done as a transfer and not a withdrawal.

Your provider must make a direct transfer on your behalf to avoid tax consequences. This is regardless of the situation. When your provider completes the transfer on your behalf, this is known as a qualifying transfer.

If you make a withdrawal and "contribute" the funds to another TFSA, this is where it can get messy. Remember there is a limit to the amount you can contribute. Whilst you get the withdrawal amount back as future contribution room, it is not until the following year.

By contributing to another TFSA, you risk going over your contribution room limit. And if you do, you will be charged a 1% penalty on the amount over-contributed for every month you are over the limit.

If your TFSA is with a CDIC member, then your TFSA portfolio deposits are insured up to the value of $100,000. But it isn't that simple as coverage does not extend to stocks, bonds or mutual funds. For full information, visit the CDIC to understand coverage rules.

Both accounts have their merits, and it's what works best for you and your finances. Whilst a savings account doesn't have contribution limits, any earnings in a TFSA are tax-free. Interest earned in a savings account is taxed. A TFSA can hold cash and investments, whilst a savings account only holds cash.

Investing is being comfortable with the risks that come with it. Your appetite for risk factors into which product works best for you. Speaking with a financial advisor to determine this would be a good starting point.

You can have more than one TFSA, but be aware that your contribution room doesn't change or increase. It will be shared between all of your TFSAs.

Yes. The CRA will automatically receive an annual record from your provider.

It is possible to see your contribution room in your online account with the CRA. But it is not  reflective of contributions or withdrawals you may have made recently. The figure you will see online is your TFSA balance as of January 1 of the current year.

It is your responsibility to keep track of your contributions and withdrawals. Failure to do this may result in over contributing and owing tax.

No, you don't need to claim anything TFSA-related on your tax return. The exception is if you have made an over contribution or became a non-resident of Canada.