TFSA

How TFSAs work

If you are a Canadian resident, 18 or older and have a Social Insurance Number (SIN), you can open a TFSA.

You can save up to $7,000¹ a year, and any unused contribution room is carried over indefinitely. The amount you withdraw is added to your contribution room for the following year.

You can open more than one TFSA, but make sure you keep track of contributions and withdrawals as the penalty for over-contributions is 1% of the excess amount each month. 

Key Features and Benefits

Tax-free growth
Tax-free growth means you never have to pay taxes on interest, dividends or capital gains from your investments.

For example, if you save $7,000¹ a year over 20 years, it could mean as much as $22,766.58² more in your pocket. 

For illustrative purposes only

_{¹ The annual TFSA contribution amount in 2024. 
² Assumes an Ontario resident earning $70,000 yearly salary, initial investment of $7,000 with annual investments of $7,000, 4.0% interest rate compounded yearly over 20 years, for both accounts. Assumes interest income, which is taxed at marginal rate of 29.65% per year.  Source: Federal marginal tax rate of 20.50%: https://www.canada.ca/en/financial-consumer-agency/services/financial-toolkit/taxes/taxes-2/5.html, and Ontario tax rate of 9.15%: https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#provincial}

Tax-free withdrawals
You can withdraw money from your TFSA at any time, tax-free. And the amount you withdraw is added to your contribution room for the following year.

Withdrawals from a TFSA don't affect your eligibility for federal income-tested benefits such as Old Age Security (OAS), Guaranteed Income Supplement (GIS), Canada Child Benefit (CCB) and GST Credit.

Tax benefits of TFSA vs. RRSP

Both a TFSA and an RRSP let your savings grow tax sheltered. So how are they different? 

• With a TFSA, your withdrawals are always tax-free, but you don't get a tax deduction when you contribute
• With an RRSP, you get a tax deduction when you contribute, but you pay tax when you make withdrawals

Which one works better?

• Generally, you will come out ahead with a TFSA if you are in a higher tax bracket when you make withdrawals
• Generally, you will come out ahead with an RRSP if you are in a higher tax bracket when you make contributions