Short Summary
A TFSA is a registered savings and investment account that allows Canadians to earn investment income and capital gains tax-free. Contributions are not tax deductible, but investments grow tax-free and withdrawals are generally tax-free. Unused contribution room carries forward indefinitely, and withdrawals create new contribution room in the following calendar year.
FAQ
What is a TFSA?
A TFSA is a registered account that allows Canadians to save and invest without paying tax on investment growth or withdrawals.
What investments can I hold in a TFSA?
Eligible investments generally include:
Cash
GICs
Bonds
Mutual funds
ETFs
Stocks
Are TFSA contributions tax deductible?
No. TFSA contributions do not reduce taxable income.
Are TFSA withdrawals taxable?
No. Withdrawals are generally tax-free.
Does withdrawing money restore contribution room?
Yes, but not immediately. Withdrawn amounts are added back to contribution room on January 1 of the following calendar year.
Can I have more than one TFSA?
Yes. However, all TFSA accounts share the same contribution room.
What happens if I overcontribute?
CRA may assess a penalty tax of 1% per month on excess contributions.
Troubleshooting
My CRA contribution room looks different than expected
CRA contribution room information may not reflect recent transactions because financial institutions report contribution information after year-end.
Review your own contribution and withdrawal records and compare them to your CRA records.
I transferred my TFSA and now my contribution room seems incorrect
If assets were withdrawn and re-contributed instead of transferred directly, the transaction may affect available contribution room.
I withdrew funds but cannot recontribute right away
Contribution room from withdrawals is generally restored on January 1 of the following calendar year.
Concepts & Definitions
Contribution Room
The maximum amount you may contribute based on CRA rules.
Direct Transfer
Movement of TFSA assets between institutions without creating a contribution or withdrawal.
Over-Contribution
Contributing more than your available contribution room.
Tax-Free Growth
Investment income and gains earned without tax while inside the account.
Compliance Notes
Contribution limits are established by CRA.
Contribution room is shared across all TFSA accounts.
Over-contributions may be subject to CRA penalties.
Tax rules may change over time.
Clients should consult CRA records and qualified tax professionals regarding personal tax situations.