Tax Free Savings Account (TFSA) Refresher

by Mike Holman

I was talking with my Dad recently about money stuff (he’s a big investment nut as well) and he suggested writing about the TFSA again since it is going to be effective fairly shortly (Jan 1, 2009).  A rather timely and excellent idea so here it is!

What is the TFSA?

A type of investment account where you make contributions but don’t get any tax refund. While the money is in the account there are no taxes applied to any kind of earnings such as interest, dividends, capitals gains. Any withdrawals from the account are not taxable and won’t count against any government programs ie GIS, OAS.

What are the TFSA rules?

  • You can contribute $5000 per year to this account for the years 2009 to 2012 and $5,500 for year 2013 and beyond.
  • The contribution room is carried forward.
  • No taxes on any earnings.
  • No taxes on any withdrawals.
  • When you withdraw money from the account, the contribution room available gets increased by the amount of the withdrawal.  Keep in mind that when you do a withdrawal, the new contribution room only gets added for the following year so you can’t keep withdrawing and contributing during the same year.
  • You can transfer between financial institutions – this will work the same way as transferring your RRSP – there will be no effect on your contribution room.
  • Similar to an RRSP, you can have multiple TFSA accounts.
  • The TFSA annual limit will be indexed to inflation.  However, it will only be increased in $500 intervals so the cumulative inflation number (over several years) has to be 10% before the limit will be increased to $5500.
  • You can withdraw money from the TFSA and transfer it to a non-registered account or RRSP.

When did the TFSA start?


You can set up a TFSA account starting Dec 1, 2008 and the first deposit can occur on Jan 1, 2009.  There are a number of banks offering to ‘pre-enroll’ you in a TFSA or even ING which will give you a bonus to pay for your taxable interest for the remainder of the year.  While there is nothing wrong with opening an account early, with the exception of the ING offer, there is no real benefit to you as well.

More information on the TFSA start year.

TFSA benefits

Any money that you might be saving for emergencies or upcoming large purchases will have a constant tax drag in an non-registered account. With the TFSA, this tax drag no longer exists so you will end up with more money for your purchase or emergency.  This is the biggest benefit to the TFSA in my mind.

Another significant benefit is retirement planning – while the TFSA is not as good as the RRSP for most people, it is much better than a non-registered taxable account.

More information on the TFSA

Benefits of the Canadian tax free savings account

Tax Free Savings Account (TFSA) Basic information for Canadians

TFSA Over-Contribution Penalty – How To Fix


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