TFSA - Tax-Free Savings Account

A Tax-Free Savings Account (TFSA) is a registered tax-advantaged savings account in which one can earn tax-free income. It was introduced by the Canadian government in 2009 to encourage eligible Canadians to save.

Within a TFSA account, interest, capital gains, and dividends generated by the products are not subject to taxation.

After opening a TFSA account, one can contribute to the account at any time, earn interest or returns, and enjoy tax-free benefits.

加拿大免税储蓄账户 TFSA

免税储蓄账户TFSA是可以赚取免税收入的注册税收优惠储蓄账户，由加拿大政府于2009年推出，旨在鼓励符合条件的加拿大人进行储蓄。

在TFSA账户中的产品产生的利息、资本收益与股息分派均无需纳税。

开设TFSA账户后，可随时向该账户供款，赚取利息或回报，同时免于纳税。

Where can I open a TFSA?

Most financial institutions can open a TFSA account. For example: banks, credit unions, trust and loan companies, insurance companies.

What types of products can be held in a TFSA?

A TFSA account can hold various income-generating investment products, depending on investment objectives and risk preferences.

For example: cash, Guaranteed Investment Certificates (GICs), bonds, mutual funds, Segregated Funds, exchange-traded funds (ETFs), and stocks.

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TFSA Contribution Limit

The Canadian government sets an annual contribution limit for TFSA account holders, which is referred to as the contribution limit.

The annual TFSA dollar limit for each of the years from 2009 to 2024 are:

Year	Limit
2009 to 2012	$ 5,000
2013 and 2014	$ 5,500
2015	$ 10,000
2016 to 2018	$ 5,500
2019 to 2022	$ 6,000
2023	$ 6,500
2024	$ 7,000

After opening an account, the contribution limit is determined by the current year’s contribution limit, any unused contribution room from previous years, and the total withdrawals made from the TFSA in the previous year. Even without filing a tax return or opening a TFSA, individuals who are 18 years or older and Canadian residents can accumulate contribution room each year.

All contributions made to the TFSA account in a given year (including contributions made after withdrawals) will be deducted from the contribution limit.

For example, if Xiao Ming met the eligibility criteria to open a TFSA account in 2016 but only started his first TFSA account in 2021, his contribution limit for 2021 would be:

C$5,500 * 3 (contribution limit for 2016-2018) + C$6,000 * 3 (contribution limit for 2019-2021) = C$34,500.

As of 2024, the cumulative total contribution amount is C$95,000.

Know Your Limit

TFSA Account Holder and Beneficiary

To open a TFSA account, individuals must be 18 years of age or older and be a Canadian resident with a Social Insurance Number (SIN). However, in some provinces, individuals must be 19 years old to open a TFSA account. These provinces include British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Northwest Territories, Nunavut, and Yukon.

Eligibility Criteria for Non-Canadian Residents

If you become a non-Canadian resident for tax purposes after opening a TFSA account, you can keep your TFSA account, and any income earned through the account is not subject to taxation in Canada.

To become a tax resident in Canada, generally, you need to reside in Canada for at least 183 days in a year.

Regardless of where you open a TFSA account, it is necessary to designate a beneficiary. In the event of an unfortunate incident involving the TFSA account holder, the beneficiary has the right to inherit the investments held in the TFSA account. This inheritance is not considered the beneficiary’s income and is not subject to taxation.

Withdrawals and Account Transfers for TFSA

TFSA accounts allow for withdrawals at any time without age restrictions, and no reporting or taxation is required. The withdrawal amount from a TFSA account is added back to the contribution limit in the following year and does not count towards the contribution limit of the current year.

For example, if Xiao Ming contributed C$6,000 to his TFSA in 2022 and later withdrew C$2,000, if he deposits the C$2,000 back in the same year, it would exceed the contribution limit. He should wait until the following year to contribute it back.

It is best to arrange a direct transfer between the two institutions when transferring a TFSA account to avoid potential taxes. It is also important to ensure that the total sum of TFSA accounts does not exceed the contribution limit.

TFSA Precautions

Avoid Frequent and High-value Trading

If the TFSA account holder engages in frequent trading within the account and maintains a significant amount of funds (e.g., exceeding CAD 200,000) with high returns, it is possible for the Canada Revenue Agency (CRA) to classify it as a “business,” which goes against the original purpose of the TFSA. As a result, the account holder may receive penalty notices. In other words, while TFSA accounts allow for stock purchases, it is advisable to avoid stock speculation within the TFSA account, such as day trading.

Avoid Exceeding the TFSA Contribution Limit

If you exceed the contribution limit for the first time, you will generally receive a letter from the tax authority (TFSA excess amount letter) reminding you to withdraw the excess amount. If you consistently exceed your TFSA limit, your TFSA will be subject to a monthly penalty of 1% on the excess contributions. For example, if you overcontribute by C$10,000, you would be required to pay C$100 in tax per month, totaling C$1,200 per year (C$100 x 12), until the entire excess amount is withdrawn or until future TFSA contribution limits increase to accommodate the excess amount.

Why Invest in TFSA?

Tax-free Growth and Withdrawals

You are not required to pay taxes on any investment income earned within your TFSA account, and you are also not required to pay taxes on funds withdrawn from your TFSA account.

Flexibility

A TFSA account can provide flexible savings solutions to help you achieve various short-term and long-term goals. It can assist you in reaching your savings objectives while also allowing you to make withdrawals whenever needed.

Investment Savings Account

A TFSA account can hold a variety of investment products, such as cash, GICs (Guaranteed Investment Certificates), funds, stocks, and more, not limited to traditional savings accounts.

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