Tax Free Savings Accounts

Since 2009, individuals 18 or older who were residents of Canada for income tax purposes could contribute amounts to a Tax Free Savings Account. The amounts that could be contributed each year have varied, starting at $5,000 per year in 2009, rising to $5,500 for 2014, rising again to $10,000 for 2015, and then dropping back to $5,500 for 2016.

Contributions to a TFSA are not tax deductible and the contribution room can be carried forward indefinitely. Investment income and capital gains earned in the TFSA will be tax-free and you can make tax-free withdrawals from a TFSA at any time. When you make a withdrawal, the amount withdrawn will be added to your contribution room for the following year and can be re-contributed in the future.

TFSAs will generally be allowed to hold the same investments as RRSPs. This includes cash, mutual funds, publicly traded securities, GICs, bonds and certain shares of small business corporations. There are substantial penalties if a TSFA holds an investment that is a “prohibited investment”.

Unlike RRSPs, TFSA contribution room is not lost when you make a withdrawal and you do not have to wind it up when you reach age 71. Your TFSA can be maintained for your entire lifetime.

The Canada Revenue Agency only tracks TFSA contribution room for eligible individuals who file personal tax returns, which means you should file a return if you are 18 or older even if you do not have any taxable income.