What is a Tax-Free Savings Account?

A Tax-Free Savings Account (TFSA) is a Federal Government introduced registered savings product that allows taxpayers to earn investment income tax-free. A TFSA allows Canadian Residents age 18 to set money aside in eligible savings accounts or investment vehicles and watch those savings grow tax-free throughout their lifetime. The TFSA is offered to complement existing products such as RRSP and RESP, which have a more defined purpose (saving for retirement and post-secondary education costs respectively). To further clarify the difference between a TFSA and a RRSP, click here.

There are no restrictions on the way TFSA funds (contributions and earnings) may be used (i.e. purchase a car, renovate a home, start a small business, take a family vacation, or just save for a rainy day). All income levels and all walks of life can benefit from a TFSA. We recommend a review of each your financial situation to determine how to best utilize a TFSA within your financial plan. 

Top 5 reasons to invest in a Tax Free Savings Account:

  • You do not pay any income taxes on interest earned, regardless of how much your TFSA earned.
  • You can access your money when you need it; there are no penalties for making withdrawals.
  • Everything you withdraw from your TFSA can be replaced the following year; meaning there is no penalty for having to dip into your savings down the road.
  • Any contribution room you do not use in the current years carries over to future years.
  • You can take out as many different TFSA products as you like, so long as the combined balances do not exceed your contribution limit for the year. This allows you to take advantage of all the different products offered under the TFSA program including CDRs, Term deposits, Index Linked products, and variable rate accounts.

TFSA Contribution Limit
Contributions to a TFSA may only be made by the Holder and the amount is not tied to the income of the Holder.

  • $5,000 is the maximum annual TFSA contribution limit for each year beginning in 2009 until 2012.
  • $5,500 is the maximum annual TFSA contribution limit for each year beginning in 2013 until 2014.
  • $10,000 is the maximum annual TFSA contribution limit for 2015.
  • $5,500 is the maximum annual TFSA contribution limit for 2016 -2017.
  • Prior to and after 2015, the maximum annual contribution limit increases depending on the rate of inflation: rounded to the nearest $500 e.g. if the rate of inflation is 5.1% in 2018, the maximum would increase to $6,000 ($5,500 x 5.1% = $302.50; nearest $500 increment is $6,000). Therefore the limit will increase some years, but not every year.
  • Unlike RRSPs, contributions are not tax deductible

TFSA Unused Contribution Room
When a TFSA Holder contributes less than the maximum contribution limit, the difference is referred to as unused contribution room.

  • Unused contribution room will accumulate each year.
  • Unused contribution room is carried forward indefinitely, allowing the Holder to catch up in the future.
  • A TFSA withdrawal will increase the contribution room for the year after withdrawal. As a result, when amounts are withdrawn from a TFSA they can be re-contributed in the future when funds become available.
  • Canada Revenue Agency will confirm the contribution room on the annual Notice of Assesment.

Example: If you had $17,000 saved in a TFSA in 2016 and needed to withdraw $7,000 in that same year, you will not be able to replace that $7,000 until 2017. In 2017, you will have any unused contribution room from 2016 ($29,500 in this example) plus any withdrawals from the previous year ($7,000 in this example) plus the standard annual increase in contribution room of $5,500 (2017's limit increase amount) for a total limit of $42,000 allowed to be added to a TFSA.

Qualified Investments
The types of eligible investments are restricted under the Income Tax Act and include;

  • Term deposits and GIC's
  • Variable interest savings accounts
  • Credit union shares
  • Index-Linked term deposits
  • Mutual Funds*

Learn More


*Mutual funds are offered through Credential Asset Management Inc. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.


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