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Tax Free Savings Account (TFSA)

Saving just got a whole l​ot easier

Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs.

A Tax-Free Savings Account (TFSA), is an account where you can save or invest up to $5,500 a year.1 Unlike other types of savings, you’re not taxed on the income you earn. It’s a great way to save for your short or long-term goals; because it lets your savings grow – tax-free.

The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).

How the Tax-Free Savings Account Works

  1. Canadian residents age 18 or older can contribute up to $5,500 annually to a TFSA.
  2. Investment income earned in a TFSA is tax-free.
  3. Withdrawals from a TFSA are tax-free.
  4. Unused TFSA contribution room is carried forward and accumulates in future years.
  5. Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
  6. Choose from a wide range of investment options
  7. Contributions are not tax-deductible.
  8. Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
  9. Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
  10. TFSA assets can generally be transferred to a spouse or common-law partner upon death.

The difference between TFSAs and RSPs

Primary purposeSaving for any purposeRetirement savings, home purchase or education.
Annual contribution limit$5,500* PLUS amounts withdrawn in previous years18% of previous year’s earned income (maximum limits apply), less pension adjustments
ContributionsNot tax-deductibleTax-deductible
Unused contribution roomCarried forwardCarried forward
WithdrawalsYou’re not taxed on withdrawals.
They do not affect federal income-tested government benefits such as Old Age Security
Money taken out is taxed as income at your marginal rate. Withdrawals are counted as income and may affect federal income-tested government benefits such as Old Age Security
Withdrawn amountsAdded to contribution room in future yearsContribution room is lost for amounts you withdraw
Plan maturityNone; no upper age limit on contributionsEnd of year when you turn 71
Spousal planN/AYou can contribute directly to a spousal RSP
Age minimum18N/A

*Annual contribution limit for 2016 is $5,500. 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.
**The amount you withdraw can be re-contributed to your TFSA the following year or years without impacting your contribution room.

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