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Home > Personal Banking > Planning > Tax Free Savings Account

So, what's a TFSA, and who should care about it?

In the spring 2008 budget, the federal government announced a new savings vehicle for Canadians, the Tax-Free Savings Account, or TFSA. It will be available in January 2009. We don't know yet what the specifics of the account will be (financial institutions are waiting for the regulations once the government resumes sitting in the fall).

Until then, here are some basics on the TFSA:

  • The TFSA is a new savings account, registered with the Canada Revenue Agency
  • Individuals 18 and older with a valid SIN can contribute up to $5,000 in 2009 and each year after; this amount will be annually indexed to inflation to the nearest $500
  • There is no maximum age restriction
  • Amounts in the TFSA will not impact your eligibility for income-tested benefits or credits
  • Eligibility is based on your Notice of Assessment from the CRA, so even if you (or a child 18 years old or older) had no income, you should still submit a Nil return in order to allow your contribution room to grow for the future
  • Unused contribution room accumulates and is carried forward from year to year
  • Contributions are not tax deductible
  • The interest income and capital gains earned in the account grows tax-free (not reported as taxable income)
  • Withdrawals can be made any time, tax-free (not subject to withholding tax)
  • Any amounts withdrawn increase the contribution room for the following year
  • You can appoint a spouse or someone else as a beneficiary of the account
  • Only the accountholder can make contributions
  • It is the responsibility of the accountholder to ensure the contribution limit is not exceeded; if you do over-contribute, that amount will be subject to a tax of 1% per month until the amount is withdrawn
  • You can hold the same types of saving/investing vehicles in a TFSA that you do in an RRSP or RRIF (term deposits and GICs; index-linked deposits; mutual funds; publicly-traded securities; bonds; etcetera)

As soon as we have details available about the TFSA regualtions, we'll let you know. Until then, you can visit the Government of Canada website for more information:

http://www.cra-arc.gc.ca/gncy/bdgt/2008/txfr-eng.html