Tax Free Savings Account (TFSA)

The TFSA allows Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. TFSA savings can be used for any purpose, such as to purchase a new car, renovate a house, start a small business or take a family vacation.

How the TFSA Works

  • Starting in 2009, if you are a Canadian resident aged 18 and older, you can contribute every year to a TFSA. As of January 2025 the life time contribution room is $102,000 for those who were 18 as of 2009.
  • Your contributions into a TFSA are not deductible for income tax purposes but the investment income, including capital gains , earned in your TFSA is not taxed, even when withdrawn.
  • Your unused TFSA contribution room is carried forward and accumulates for future years.
  • You can withdraw funds available in your TFSA at any time for any purpose, and the full amount of withdrawals can be put back into your TFSA in future years.
  • Neither income earned in a TFSA nor withdrawals affect your eligibility for federal income-tested benefits and credits.
  • You can provide funds to your spouse or common-law partner to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.

How is a TFSA Different from a Registered Retirement Savings Plan?

An RRSP is primarily intended for retirement but the TFSA can also be used for retirement.

Did you know?

Given the same tax brackets during contribution and withdrawal, the RRSP and TFSA leads to the same after tax result.

Both plans offer tax advantages. TFSA allows you to accumulate investment income tax-free within the account, bwhile growth in an RRSP is tax deferred.

  • Contributions to an RRSP are deductible and reduce your income for tax purposes. In contrast, your TFSA savings contributions are not deductible.
  • Withdrawals from an RRSP are added to your income and taxed at current rates. Your TFSA withdrawals and growth within your account are not included in your income – they are tax free.