What is a TFSA?
The TFSA program began in 2009. It is a way for individuals who are 18 years of age or older and who have a valid social insurance number (SIN) to set money aside tax-free throughout their lifetime.
Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.
Administrative or other fees in relation to a TFSA and any interest on money borrowed to contribute to a TFSA are not tax-deductible.
How to open a TFSA
You can have more than one TFSA at any given time, but the total amount you contribute to your TFSAs cannot be more than your available TFSA contribution room for that year.
To open a TFSA, you must do both of the following:
- Contact your financial institution, credit union, or insurance company (issuer).
- Provide the issuer with your SIN and date of birth so the issuer can register your qualifying arrangement as a TFSA. Your issuer may ask for supporting documents.
Contributions
The maximum amount that you can contribute to your TFSA is limited by your TFSA contribution room.
All TFSA contributions made during the year, including the replacement or re-contribution of withdrawals made from a TFSA, will count against your contribution room.
At any time in the year, if you contribute more than your available TFSA contribution room you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account. For more information, see Tax payable on excess TFSA amount.
You do not need to have earned income to contribute to a TFSA. As the account holder, you are the only person who can do the following with your TFSA:
- make contributions
- make withdrawals
- determine how funds are invested
TFSA contribution room
Your TFSA contribution room is the maximum amount that you can contribute to your TFSA.
Only contributions made under a valid SIN are accepted as TFSA contributions.
If you were 18 or older in 2009, your TFSA contribution room grows each year even if you do not file an Income Tax and Benefit Return or open a TFSA.
If you turned 18 after 2009, your TFSA contribution room starts in the year you turned 18 and your TFSA contribution room accumulates every year after that year.
Investment income earned by, and changes in the value of your TFSA investments will not affect your TFSA contribution room for current or future years.
The annual TFSA dollar limit for the years 2009 to 2012 was $5,000.
The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
The annual TFSA dollar limit for the year 2015 was $10,000.
The annual TFSA dollar limit for the year 2016 to 2018 was $5,500.
The annual TFSA dollar limit for the year 2019 and 2020 is $6,000.
The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.
Where can I find my TFSA contribution room information?
Your TFSA contribution room information can be found by using one of the following services:
- My Account for Individuals.
- MyCRA at Mobile apps – Canada Revenue Agency.
- Represent a Client if you have an authorized representative.
- Tax Information Phone Service (TIPS) at 1-800-267-6999.
How to know your TFSA contribution room
The TFSA contribution room is the total amount of all of the following:
- the TFSA dollar limit of the current year
- any unused TFSA contribution room from previous years
- any withdrawals made from the TFSA in the previous year
Types of permitted investments
Generally, the types of investments that are permitted in a TFSA are the same as those permitted in a registered retirement savings plan (RRSP). These would include the following types:
- cash
- mutual funds
- securities listed on a designated stock exchange
- guaranteed investment certificates
- bonds
- certain shares of small business corporations
Losses incurred within a TFSA investment
Depending on the type of investment held in your TFSA, you may incur a loss in your original investment. Any investment losses within a TFSA are not considered a withdrawal and therefore are not part of your TFSA contribution room.
Transfers from your RRSP
If you transfer an investment from your RRSP to your TFSA, you will be considered to have withdrawn the investment from the RRSP at its FMV. That amount will be reported as an RRSP withdrawal and must be included in your income in that year. You can claim the tax withheld on the withdrawal at line 43700 of your Income Tax and Benefit Return. If the transfer into your TFSA takes place immediately, the same value will be used as the amount of the contribution to the TFSA. If the contribution to the TFSA is deferred, the amount of the contribution will be the FMV of the investment at the time of that contribution.
Except in certain circumstances, you cannot exchange securities for cash, or other securities of equal value, between your accounts, either between two registered accounts or between a registered and a non-registered account (swap).
Withdrawals from a TFSA
A qualifying transfer from one TFSA to another is not considered to be a withdrawal.
Making withdrawals
Depending on the type of investment held in your TFSA, you can generally withdraw any amount from the TFSA at any time. Withdrawing funds from your TFSA does not reduce the total amount of contributions you have already made for the year.
Withdrawals, excluding qualifying transfers and specified distributions, made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year.
Replacing withdrawals
If you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. If you re-contribute but do not have contribution room, you will have over-contributed to your TFSA in the year. You will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.
