A Tax-Free Savings Account (TFSA) allows you to save without paying tax on the interest you earn.  It may just be the tool you need to complement your retirement plans, or to save for more short term goals like purchasing a new car, renovating a house, starting a small business or taking a family vacation.

TFSA Quick Facts:

• If you’re a Canadian resident over the age of 18 and have filed a tax return, you qualify to have a TFSA.
• TFSAs allow you to save in either short term or long term investments without being taxed on interest earned.
• Unused contribution amounts can be added to future years.
• Unlike RRSPs, your contribution limit is not affected by your annual income.
• With a TFSA, you can still choose from a variety of products including but not limited to savings accounts and GICs.

Contribution Limits

• For the years 2009 through to and including 2012 (four years), the contribution limit was $5,000.
• For the years 2013 through to and including 2014 (two years), the contribution limit was $5,500.
• The limit was increased in 2015 to $10,000.
• For the years 2016 through to and including 2018 (three years), the contribution limit was $5,500.
• For 2019 to 2022 years,  the contribution limit is $6,000.
• For 2023, the contribution limit is $6,500.
• When a TFSA holder contributes less than the maximum, the shortfall is termed as unused contribution room.

Unused Contribution Room

• Unused contribution room will accumulate each year and is carried forward indefinitely.  This allows the TFSA account holder to use this amount in later years.
• Withdrawing from your TFSA will provide you with unused contribution room for the following year (you may not replace it in the same year you withdraw unless doing so will not take your total deposits for the year over your yearly contribution amounts).
• Your annual Notice of Assessment (issued by the Canada Revenue Agency, or CRA, after your tax filing) will contain information about your contribution room.  Alternatively, you can access this information via CRA online services, known as My Account, where changes to your TFSA account(s) are uploaded each day.  You can also contact them directly via telephone at 1-800-267-6999.

Who will get the most benefit from a TFSA?

• Young people with a long time frame to compound investment returns
• Low income individuals who save little on taxes from RRSP contributions
• People who have run out of RRSP contribution room
• People who will have a period of reduced income
• Seniors facing reductions in social benefits such as Old Age Security or the Guaranteed Income Supplement
• Seniors who must collapse their RRSPs – now as of age 71

For additional information regarding Tax Free Savings Accounts, talk to one of our experts or visit Canada Revenue Agency’s TFSA pages.