Tax Free Savings Account, TFSA

TFSA tax free savings accountA Tax Free Savings Account (TFSA) is simply a savings account in which you can save money without paying tax on the money you make investing (including capital gains). You can contribute at any time up to the maximum allowed each year. You can also take money out at any time without penalty to spend the money on anything you want. Since you are contributing with money you have already paid tax on, when you take it out you don’t pay any tax.

The federal government has set limits on the amount of money you can contribute to your TFSA account(s). While you can have more than one TFSA account, you should not exceed the overall limit or you will be penalized 1% of the over contributed amount.

Contribution Limits by Year:

      • 2009 – $5,000
      • 2010 – $5,000
      • 2011 – $5,000
      • 2012 – $5,000
      • 2013 – $5,500
      • 2014 – $5,500
      • 2015 – $10,000
      • 2016 – $5,500
      • 2017 – $5,500
      • 2018 – $5,500
      • 2019 – $6,000
    • TOTAL – $63,500

Since not everyone is in a financial position to contribute the maximum amount each year, the remainder can be carried over to a future year. Example: In 2009, you contributed $4,000. This means that you have $1,000 more to contribute in 2010 for a total of $6,000.

And if you need or want to spend some of the money in your TFSA account, you get that contribution room back in a future year. Example: In 2015, you took out $1,000. This means that in 2016 you can contribute $6,500.

There are many reasons to open a TFSA. For example:

  • You contribute the full limit to your RRSP each year. The TFSA is another way you can reduce taxes while you save. When you retire, you can withdraw from your TFSA first and delay taking it from your RRSP (and pay tax on this).
  • You need flexibility in saving and a TFSA lets you carry forward any unused contribution room.
  • You want to reduce taxes on your investments (TFSA investments are not taxed).

We are often asked which is better, a TFSA or a RRSP? To answer this question, use this handy comparison chart:

Primary purpose To save for anything To save for retirement
Tax payable upon withdrawal No Yes
Eligible income tax deduction No Yes
Time limit for contributing No Yes (age 71)
Named beneficiary Yes Yes
Carry forward contribution room Yes Yes


A TFSA is not the best choice for everyone but it does offer a tax-smart way to save. If you want some professional advice on how to use a TFSA as an effective part of your tax planning, talk to Jacqui McFarlane.