A Tax-Free Savings Account (TFSA) is a flexible investment account that allows you to earn investment income without paying taxes and gives you access to your money whenever you want it. The TFSA may be the most significant change to the Canada’s saving system since the introduction of the Retirement Saving Plan in 1957.

  • Some of the benefits you'll enjoy with a TFSA:
  • You can contribute up to $5,500 per year (contribution room) to your Tax-Free Interest Plus savings account as of January 1, 2013. The annual contribution limit for 2009 through 2012 is $5,000. 
  • Every dollar of interest earned will be tax-free. 
  • You can take out as much money as you want at any time without penalty. 
  • If you make a withdrawal you can re-contribute those funds in later years. 
  • Unused contribution room is carried forward and keeps accumulating indefinitely.
  • In case of death, your TFSA assets can be transferred to your surviving spouse without affecting their contributions, subject to certain conditions and limitations. 
  • In case of marriage breakdown, the assets can be transferred tax-free between spouses without affecting the transferee’s TFSA contribution room. 
  • Investments similar to those in an RSP are permitted.

You are eligible to open a TFSA if you are over 18 years of age or have reached the provincial age of majority, have a social insurance number, and are a Canadian resident. You may want to pre-register with your financial institution to take advantage of the January 1, 2009, start date.

Important Rules and Restrictions

It is very important to be aware that if you over-contribute to your TFSA, Canada Revenue Agency will charge a penalty.
If you make a withdrawal from your tax-free savings account, you may NOT re-contribute to your account until the following year, unless you have more contribution room for that year. As an example, if you contribute your maximum allowance of $5,500 at the beginning of 2015, then withdraw $2,000 for a family vacation in summer, you may not replace the $2,000 until the next calendar year: 2016. Since your contribution room for 2016 is $5,500, you would be able to deposit $5,500 plus the $2,000 you withdrew from 2015 for a total of $7,500. If you would contribute $4,000 on January 1, withdraw $2,000 in July, you would be able to contribute another $1,500 in that calendar year. If you want to replace the $2,000 you withdrew, you would again need to wait until the next calendar year.
Please check with Canada Revenue Agency if you are unsure what your contribution room is for any given year. For more detailed information follow this link.