Tax Free Savings Account (TFSA)

A Tax Free Savings Account (TFSA) is actually a tax free investment account. You can use a TFSA to invest or save and the growth or interest are completely tax free. Unlike an RRSP there is no tax deduction for contributions. There are limits on how much you can add to a TFSA and the penalties for putting too much into the account are quite steep (1% per month on the over contribution). This makes it vital that you carefully track your remaining contribution room.

Annual TFSA Contribution Limits

The TFSA contribution limit starts to automatically accumulate once you turn 18 years old. No action is required on your part to start to accumulate room and you do not require an income (unlike a RRSP). How much you can contribute is based on your accumulated limit ... less how much you have previously contributed.

In the table below are the contribution limits for each year since the program's inception. The latest increase in the annual contribution room was in 2019. Future contribution limits are indexed to inflation rounded to the nearest $500 (the inflation adjustment has not yet pushed the limit to the next nearest $500). Please note the limits for contribution are per person. You may have more than one TFSA account, at multiple institutions but you must not exceed your personal contribution limit.

TFSA Withdrawals

You may withdraw from a TFSA at any time (subject to any limits of the investments you have made inside the account i.e. a non-cashable GIC). As stated above there is no tax implication for making a withdrawal.

Restoration of Contribution Room

Unlike an RRSP, withdrawals from  a TFSA do not affect your long term contribution room. Any withdrawal you make is added back to your total contribution room the following calendar year. This rule is applied based on the calendar year so withdrawals make in February and December are both  restored as contribution room the following January.