Savings & Investments, Tips & Advice

Pretty Much Everything You Ever Needed to Know About Tax-Free Savings Accounts and More

Everything you needed to know about the Tax-Free Savings Account (TFSA) Program and things that you really didn’t need to know, but will come in handy at trivia night.

  1. What is a TFSA – The Tax-Free Savings Account (TFSA) program is a way for Canadians to set money aside tax-free throughout their lifetime.
  2. You have to be 18 years or older to open a TFSA
  3. You must have a valid Social Insurance Number (SIN) to open a TFSA.
  4. Unlike a RRSP, when you contribute to a TFSA, the payments are not tax deductible
  5. Your TFSA can be a deposit, an annuity contract or an arrangement in trust.  You can set up a self-directed TFSA, which you manage yourself, buying and selling different types of investments.
  6. All the income you earn on that money and whatever money you withdraw from your TFSA account are generally tax-free, too.
  7. Taxes owing on a TFSA can be from;
  • Over-contributing
  • Having non-qualified or prohibited investments in your TFSA
  • Contributing to a TFSA while being a non-resident of Canada
  • Tax payable on an advantage – Implications of benefits, loans or debts in relation to a TFSA
  1. Only the account holder can contribute to a particular TFSA. If you give your spouse or common-law partner money to contribute to their own TFSA, neither that money nor any interest earned on that money will be attributed back to you.
  2. Since 2009, when the TFSA came into existence, every eligible Canadian has accumulated contribution room every year without having to open a TFSA or filed an income tax return. As of 2019, $63,500 of contribution space is available
  3. The TFSA dollar limit was $5,000 between 2009 and 2012. In 2013, the limit increased to $5,500, where it remained until 2019 when it increased to $6,000.
  4. Your TFSA contribution limit is based on the TFSA dollar limit of any given year, plus any unused TFSA contribution room left over from the previous year, taking into account any withdrawals made from your TFSA in the previous year.
  5. Having a TFSA account will not impact any government benefits or credits you receive, such as Old Age Security (OAS) benefits, the Guaranteed Income Supplement (GIS), Employment Insurance (EI) benefits or the Goods and Services Tax/Harmonized Sales Tax Credit (GST/HST), just to name some of the most common ones. None of these will be reduced or clawed back.
  6. You can put pretty well anything that you could put into a Registered Retirement Savings Plan (RRSP) into a TFSA such as:
  • Cash;
  • Mutual funds;
  • Securities listed on a designated stock exchange;
  • Guaranteed investment certificates (GICs);
  • Bonds; and
  • Certain shares of small business corporations.
  1. You can also contribute foreign funds to your TFSA, although they need to be converted into Canadian dollars on the date of your transaction and the total amount of your contribution cannot exceed your TFSA contribution room.
  2. In kind contributions can also be made, as long as the involve qualified investments, such as guaranteed investment certificates (GICs), government and corporate bonds, mutual funds, and securities listed on a designated stock exchange. Once again, if it could go into an RRSP, it can generally go into a TFSA. (Note that when you make this kind of contribution, you will be considered to have sold the property at its Fair Market Value at the time of the contribution – meaning you may end up with a capital gain on your income tax return.
  3. Make sure not to over-contribute to your TFSA. Each time you deposit funds into your TFSA, it counts as a contribution regardless of the total amount in the account. If you deposit $3,000, withdraw it, and deposit $4,000 in the same year, you are considered to have over-contributed to your TFSA by $1,000.  As well, moving a TFSA from one financial institution to another by withdrawing and then re-depositing may result in an over-contribution. Making a transfer avoids that problem
  4. Penalty for over-contributing to a TFSA is 1% per month on the excess amount within your TFSAfor as long as the excess remains within your plan. The penalty is charged until the funds are removed from the account
  5. The CRA administers the TFSA
  6. Your TFSA contribution room information can be found by going to one of the following services:
  1. If you want to receive a TFSA Room Statement or a TFSA Transaction Summary which shows the information the CRA has received from your TFSA issuer(s) about your contributions and withdrawals, just contact the CRA.
  2. The CRA strongly recommends that Canadians keep records about your TFSA transactions to ensure that you do not exceed your TFSA contribution room. They also keep track.