Tax-Free Savings Account (TFSA): Things you need to know

15 Jan 2020

Nicole McLaren - Accounting Associate

A TFSA is a type of account granted in Canada, which allows investment income to be earned and withdrawals to be made by an individual without any tax consequences. For example, any interest or dividends earned on funds within a TFSA can be withdrawn on a tax-free basis. This type of account encourages and helps individuals save money for the future.


Who qualifies?

  • A TFSA is available to Canadian residents who are 18 years of age or older with a valid social security number.

Contribution limit

TFSA contributions are based on the annual limits indexed by the government:

  • Years 2009 to 2012: $5,000 each year
  • Years 2013 and 2014: $5,500 each year
  • Year 2015: $10,000
  • Years 2016 to 2018: $5,500 each year
  • Years 2019 and 2020: $6,000 each year
    • If a taxpayer contributes more than the limit, they will be subject to a penalty of 1% of the excess contribution per month, for each month the excess remains in the account.
    • If a taxpayer contributes less than the annual dollar limit, the remaining amount will be carried forward and included in the contribution room for the next year. Any withdrawals are added back to the contribution room at the beginning of the following year.
    • Losses on investments incurred within a TFSA do not affect the TFSA contribution limit and such losses cannot be used to reduce personal taxable income.

Therefore, if the taxpayer was at least 18 years old before or during 2009 and has never contributed to their TFSA, they will have a total TFSA contribution room of $69,500.

Investment options

  • Permitted investments within a TFSA include: cash, mutual funds, securities on a designated stock exchange, guaranteed investment certificates, bonds, and certain shares of small business corporations.


  • Track your TFSA contribution limit to avoid over contributing and thereby incurring penalties
  • Keep in mind that contributions to a TFSA do not reduce your taxable income like an RRSP contribution. However, withdrawals from a TFSA are tax-free, unlike those from an RRSP.
  • Track any TFSA withdrawals as they will increase your future contribution room.