Understanding the tax-free savings account (TFSA)

November 16, 2021

Ottawa, Ontario

Canada Revenue Agency

November is Financial Literacy Month in Canada. Financial literacy means having the knowledge, skills and confidence to make responsible financial decisions at any stage of your life. The Canada Revenue Agency (CRA) recognizes the importance of giving Canadians the information and tools they need to make sound financial decisions, and is proud to support Financial Literacy Month.

Building your financial literacy allows you to unlock your financial power - learn how you can get started and make the most out of a tax-free savings account (TFSA) with your local bank, credit union, brokerage or insurance company.

What is a TFSA?

The Tax-Free Savings Account (TFSA) was introduced by the Government of Canada in 2009 to help Canadians save and invest their money – tax-free – throughout their lifetime. This savings vehicle allows for you to set money aside in a TFSA for any purpose – whether you are saving for your education, retirement, a home, or simply for a rainy day, the earnings made in your TFSA will generally not be taxed. You are in control of your TFSA, so you can make contributions and withdraw funds whenever you want without penalty – contributions, however, can only be made if there is available contribution room.

TFSAs are not just for saving. You can also use it to hold and grow a variety of investments, which include exchange-traded funds, stocks, bonds, and GICs.

Who is eligible for a TFSA?

The eligibility criteria is simple: any Canadian resident who is the age of majority or older in their province or territory, and has a valid social insurance number (SIN), can open a TFSA. All Canadian residents who meet these criteria for tax purposes can open a TFSA.

In most provinces, once you turn 18, you can open and contribute to your TFSA according to the dollar limit of that year. In provinces and territories where the legal age is 19, you can still accumulate contribution room when you turn 18, but you will need to wait another year before you can make contributions; that contribution room will carry over to the next year.

How to Open a TFSA

To get started with a TFSA, contact your financial institution, credit union, or insurance company.

Contributions to your TFSA

Your contribution room determines the maximum amount that you can contribute to your TFSA. The annual contribution limit for 2021 is $6,000. TFSA contribution room accumulates each year – either beginning in 2009 or the year the individual turned 18 and is a resident of Canada for tax purposes. Contribution limits from previous years are included in your contribution room, even if you have not opened or contributed to a TFSA.

Example 1: Josie opened her TFSA in 2020 on her 18th birthday. The contribution limit for that year was $6,000, and she put $2,000 away into her TFSA. In 2021, the contribution limit was $6,000. This means that on January 1, 2021, Josie had $10,000 of available contribution room for the year ($4,000 unused contribution room from 2020 + 2021 contribution limit of $6,000).

It is important to keep track of your annual TFSA contributions as withdrawals are only added back to your contribution room in the following year.

Example 2: Dalir opened his TFSA in 2020, the same year he turned 18. The contribution limit for that year was $6,000, and he put $6,000 into his TFSA in January. Dalir had an unexpected expense and withdrew $6,000 in March. In August, Dalir had since saved up enough money and decided to put back the $6,000 he had taken out earlier in the year. Dalir is now considered to have over contributed to his TFSA, because he has exceeded his TFSA annual limit of $6,000 because his net TFSA contributions for the 2020 year is $12,000 ($6,000 in January and $6,000 in August).

To view your TFSA transaction summary online, register for or sign in to My Account.

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Canada Revenue Agency

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