TFSAs (Tax-Free Savings Account)

The Tax-Free Savings Account (TFSA) allows Canadians to earn investment income tax-free

A few important things to know about TFSAs

• Any person aged 18 or older who is resident in Canada can contribute to a TFSA. Contributions cannot exceed the maximum amount permitted by law.
  
  
• Since there is no age limit for contributing, you can defer contributions or carry forward any unused contribution room indefinitely to future years.
  
  
• You can withdraw funds without having to pay taxes, at any time and for any reason. You do not need to include the amount withdrawn in your income.
  
  
• Unlike RRSP contributions, TFSA contributions are not tax deductible.
  
  
• Note – The 2009 TFSA contribution limit is $5,000. The contribution limit will be indexed to inflation and rounded to the nearest $500 on a yearly basis thereafter.

How to open a TFSA…

Step 1 – Open a TFSA by contacting your financial institution or a life insurance company.

Step 2 – Choose an investment type that corresponds to your investor profile (PDF, 8 p., 251 Kb). 
Depending on your profile, you can invest your funds in:

• Guaranteed Investment Certificates (GICs);
• Multistrategy investments;
• Segregated funds or "guaranteed investment funds", such as the Helios contract;
• Shares, bonds, etc.

Does it make sense to borrow for TFSA contributions?

Yes… as long as the rate you borrow at is lower than the interest that would be made on your TFSA investments. Moreover, any losses incurred on your investments are not tax-deductible, which makes this strategy more risky.
 
A wiser choice would be to contribute to the TFSA in instalments that could be equal to any repayments on a loan.

Other tools to help you

• Use the simulator to find out how much tax you could save by contributing to a TFSA.
  
  
• For more information on TFSAs, visit the Canada Revenue Agency website.