TFSA basics
A brief look at how TFSAs work.
Tax-freeTax-free Money that you do not pay tax on.+ read full definition savings accounts (TFSAs) are designed to help Canadians save more.
9 things to know about TFSAs
- TFSAs are available to Canadians age 18+.
- The annual contributionContribution Money that you put into a savings or investment plan.+ read full definition limit is indexed for inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition.
- You can save taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition free for any goal you want (car, home, vacation).
- You don’t need earned income to contribute.
- You don’t have to set up a TFSATFSA See Tax-Free Savings Account.+ read full definition or file a tax return to earn contribution roomContribution room The amount you can put into a savings plan like a Registered Retirement Savings Plan (RRSP). If you do not put the full amount into the plan each year, you will have extra, unused contribution room that you can use in later years. Example: Let’s say you can contribute $12,000 to your RRSP this year,…+ read full definition.
- You can take money out when you want, for any reason, without paying any tax.
- If you take money out, you can re-contribute it the following year, in addition to the annual maximum.
- You can hold a wide range of investments in a TFSA, like cash, GICs, bonds, stocks and mutual funds.
- You can put money into your spouse’s or common-law partner’s accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition.
Contribution limits by year
TFSA contribution room is indexed for inflation and annual limits vary by year. If you don’t contribute the full amount each year, you can carry forward the unused amounts, based on the contribution limits for each year. Here are the annual contribution limits for each year since 2009:
| Year | Contribution |
| 2009 | $5,000 |
| 2010 | $5,000 |
| 2011 | $5,000 |
| 2012 | $5,000 |
| 2013 | $5,500 |
| 2014 | $5,500 |
| 2015 | $10,000 |
| 2016 | $5,500 |
| 2017 | $5,500 |
| 2018 | $5,500 |
| 2019 | $6,000 |
| 2020 | $6,000 |
| 2021 | $6,000 |
| 2022 | $6,000 |
| 2023 | $6,500 |
You can put money in at any time, up to set limits. You can take money out at any time, without paying any tax.
Making transfers between TFSAs
If you have more than one TFSA, you can transfer funds between them. It won’t affect your TFSA contribution room — as long as the transfer is done directly between the TFSAs. Speak to your financial institution or investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition firm to find out how to do this.
If you withdraw money yourself from one TFSA and contribute that amount to another TFSA, it will be considered a separate contribution – not a transfer. That contribution will reduce, and may even exceed, your TFSA contribution room for the year. If you over-contribute you’ll pay a penalty.
Learn more about the rules for making transfers between TFSAs.
Penalties for breaking the rules
- Over-contributions – If you contribute too much to your TFSA, you’ll pay a penalty of 1% per month on the excess amount until you remove it. If you over-contribute deliberately, you’ll pay a 100% tax on any gains or income you make on the excess amount.
- Prohibited and non-qualified investments – Any gains or income you make from holding these investments in your TFSA will be taxed at 100%. Example: shares of a company in which you have a significant interest (10% or more).
- AssetAsset Something of value that a company or an individual owns or controls. Examples: buildings, equipment, property, a car, investments, or cash. Can also include patents, trademarks and other forms of intellectual property.+ read full definition transfer transactions – You’ll pay 100% tax on any gains made by swapping investments between your TFSA and a registered or a non-registered account. This is to discourage people from using their TFSA to realize gains on investments that would otherwise be subject to tax. Example: you swap cash in your TFSA for an investment from your RRSP.
Take a look at these examples to learn more about how Canada Revenue Agency (CRA) calculates tax penalties on over-contributions to TFSAs.
Warning
You’ll pay a hefty penalty if you deliberately over-contribute to your TFSA.