Understanding the Tax Free Saving Account (TFSA)

UNDERSTANDING THE TAX FREE SAVING ACCOUNT (TFSA)

tfsa

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

How Much Can You Contribute?

You do not have to set up a TFSA or file a tax return to earn contribution room.  For 2018, the personal limit is $5,500 as shown below.

Beginning is 2009,  if at any time in the calendar year you were 18 years of age or older and a resident of Canada, your total limit accumulates, even if you don’t use it.  For example, if you were over age 18 in 2009, your TFSA Total Contribution Limit for 2018, increases to $57,500. That means if you’ve never opened a TFSA, you could open an account in 2018, and contribute up to $57,500, as shown below.

What Types of Investments are Allowed? 

In general, the types of investments that will be permitted in a TFSA are similar to those in an RRSP. These would include:

  • cash;
  • mutual and/or Segregated funds;
  • securities listed on a designated stock exchange;
  • guaranteed investment certificates (GICs);
  • bonds; and
  • certain shares of small business corporations.

Things to Watch Out For

  • Withholding taxes on foreign dividends in a TFSA

Withholding taxes will be deducted from foreign dividends received in a TFSA, and these taxes are not recoverable.

  • Don’t Over-Contribute

The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month.

Where can you find out your TFSA contribution room information?

Your TFSA contribution room information can be found by going to one of the following government services.

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