– A Tax-Free Savings Account (TFSA) is a special federal
government-registered account, introduced in 2009, that lets any
investments held within it accumulate tax-free. In addition, withdrawals
from the account are also completely tax-free.
Basically, you can contribute up to a maximum $5,000 to a TFSA for every
year since it began in 2009, up to 2012. Starting in 2013, the government
raised the annual limit to $5,500. In 2015, the Conservative government
raised the limit to $10,000. However, that was repealed the next year by
the incoming Liberal government, and the limit was reduced back to an
What many people do not realize, though, is that the one-time $10,000 limit
in 2015 still counts towards contribution room if you didn’t contribute in
that year. So if you haven’t ever made any contributions to a TFSA, as of
2017, you have $52,000 in contribution room available. That’s $52,000 that
you can invest right away, with absolutely no tax payable on any income or
growth from that investment – ever!
The contribution limit is not income-tested, the way it is for an RRSP, so
anyone can contribute the allowable annual maximum every year regardless of
their income level. Unused “contribution room” can be carried forward and
used in future years.
However, it is important to note that contributions are not tax deductible
the way they are for RRSPs. In other words, you are investing after-tax
income, but then again, there’s no tax payable at the back end.
One downside may be that like an RRSP and other registered plans, the tax
benefits of certain kinds of investment income are lost within a TFSA. For
example, the dividend tax credit is not available. And you do not have the
ability to use tax losses to offset capital gains. You also lose the
capital gains exemption inside a TFSA, but this is a moot point really,
because any capital gains generated by investments in the account are
completely tax-free anyway.
While you may withdraw funds from your TFSA at any time, you have to be
careful you don’t contribute, withdraw, and recontribute in the same year.
If you start using your TFSA like a straight deposit savings account, you
may fall afoul of the penalties for overcontributing in a given year, and
these can be pretty stiff. As a rule of thumb, treat your TFSA as a
tax-sheltered savings vehicle, much like an RRSP, and not as a place to
park cash for day-to-day expenditures. – Robyn
Robyn Thompson, CFP, CIM, FCSI, is the founder of
Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management
for high net worth individuals and families. Contact her directly by
phone at 416-828-7159, or by email at
for a confidential planning consultation.
Notes and Disclaimer
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The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned are illustrative only and carry risk of
loss. No guarantee of investment performance is made or implied. It is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice. Please
contact the author to discuss your particular circumstances.