A Tax-Free Savings Account (TFSA) is a savings option that allows you to grow your savings without ever paying tax on the growth within your account. This is unique from traditional savings accounts where you are required to pay tax on the growth earned by your investment.
Each year residents of Canada who are at least 18 years of age are allowed to invest up to $6,000* into their TFSA, in addition to any previously unused contribution room. Deposits made into a TFSA are made with after-tax dollars meaning that withdrawals can be made at any time on a tax-free basis. Once a withdrawal is made, the contribution room is regained in the year following the withdrawal.
*The annual TFSA limit is set by Canada Revenue Agency (CRA), and is currently $6,000. Your notice of assessment will tell you if you have unused contribution room from previous years. Contributions over the maximum will be charged a monthly penalty of 1% by CRA.
Who should have a TFSA?
With so much flexibility, the TFSA is a savings option from which most Canadians can benefit. At any time you can access your savings without ever paying tax on the growth, making it perfect for any kind of short-term savings goals, including:
- home renovations
- a vehicle
- a family trip
- emergency savings
A TFSA is also a great option for retirement savings for individuals who are looking for an alternate source of income during retirement, or who expect to be in an equal or higher tax bracket once they retire.
Unlike an RRSP, a TFSA does not need to be converted to an income product at age 71, which makes it an ideal option for retirees who are looking for a way to save on a tax-free basis throughout their retirement. Additionally, income from a TFSA does not affect your eligibility to receive Old Age Security (OAS), Guaranteed Income Supplement (GIS), goods and services tax (GST) credit, or other income tested benefits and tax credits.
Products that we currently offer as a TFSA