The Tax Blog for Smart Canadians

Who is eligible?

Any adult 18 years or over, and a resident of Canada, is eligible to contribute to a TFSA.

How much can I contribute?

This is determined by your TFSA contribution room, a cumulative limit that you started growing when the program first came into effect in 2009, or the year you turned 18. It started at $5,000/year in 2009 and gradually increased to $6,000/year in 2022 (with $10,000/year in 2015). If you never contributed to a TFSA since 2009, your 2022 cumulative room is $81,500. Note that unlike an RRSP, the TFSA contribution room is not based on earned income.

The table below summarizes the annual and cumulative TFSA room increases:

What investments can I buy in a TFSA?

Your TFSA can hold the same investments that you would have in an RRSP, such as:

• cash
• mutual funds
• securities listed on a designated stock exchange
• guaranteed investment certificates
• bonds
• certain shares of small business corporations

Do I get a tax deduction when I contribute?

No. Unlike an RRSP, you do not get a tax deduction for a TFSA contribution.

Are my gains sheltered within the account?

Yes, any gains earned within the TFSA are tax sheltered. However, any losses incurred on your investments within the account cannot be deducted.

What happens when I make withdrawals?

Withdrawals from a TFSA are tax-free, which is why the contributions are not deductible (see above). In comparison, withdrawals from an RRSP are taxable.

Also, your contribution room for the following year will increase by the amount of the withdrawal. Let’s say, for example, that you have $20,000 in contribution room in the current year with no new contributions made, and you withdraw $5,000 from the account; in the following year, your room will increase by the annual TFSA limit of $6,000 (see above), plus $5,000 from the previous year’s withdrawal, for a total increase of $11,000.

Do TFSA withdrawals affect other benefits?

As mentioned above, withdrawals from a TFSA are tax-free. The amounts withdrawn do not affect benefits that are based on your net income, such as the Canada Child Benefit, the GST Credit and the Guaranteed Income Supplement.

Can I transfer investments from my RRSP to my TFSA?

Yes, but keep in mind that the investments transferred will be considered a withdrawal from your RRSP account, and as such, they will be added to your income for the year. The transfer will also be considered a contribution to your TFSA thereby using up some of your contribution room.

If I borrow to invest in a TFSA, is the interest deductible?

No. Since your gains are tax sheltered, you cannot deduct interest from an investment loan.

How do I keep track of my TFSA contribution limit?

You can keep track of your contribution limit through the CRA’s My Account portal.

What happens to the account when I die?

The TFSA ends and becomes a taxable account. The funds held within the account at the time of death are paid out tax-free. Any amount accumulated beyond that date will be taxable.

If, upon your death, your TFSA is transferred to your spouse/common-law partner, they can maintain the account or roll it into their own without any tax consequences (not taxable, no impact on the contribution limit).

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