A TFSA lets you save money and invest it without paying tax on the growth or withdrawals

A Tax-Free Savings Account (TFSA) is a registered account you open with a Canadian bank, credit union, or investment firm. Money you put in grows tax-free, and you can withdraw it whenever you want without triggering income tax. The account itself is registered with the Canada Revenue Agency (CRA), which means the institution reports your contributions and withdrawals to the government, but the CRA does not tax what happens inside the account.

The key difference from a regular savings account is that interest, dividends, and investment gains are never taxed. If you put $6,500 in a TFSA and it grows to $8,000, you owe no tax on that $1,500 gain. If you withdraw $3,000 to pay for something, that withdrawal is not counted as income. This makes a TFSA useful for both short-term savings and long-term investing.

You can hold the account in your name only. You cannot have a joint TFSA with a spouse, though each spouse can open their own separate account.

Key Takeaways

  • You must be a Canadian resident aged 18 or older with a valid Social Insurance Number to open a TFSA.
  • The CRA sets an annual contribution limit that changes with inflation; for 2024 it is $7,000, and unused room carries forward to future years.
  • Money grows inside the account tax-free, and withdrawals do not count as income, so they do not affect income-tested benefits or your tax bracket.
  • When you withdraw money, the contribution room returns to your account on January 1 of the following year, so you can re-contribute the same amount later.

Who can open a TFSA and when

You must be a Canadian resident, at least 18 years old, and have a valid Social Insurance Number (SIN). Residency means you live in Canada and are not a temporary resident—if you are on a work or study permit, you cannot open a TFSA until you become a permanent resident or citizen.

You can open a TFSA at any time during the year. There is no important date, and you do not need to open one by a certain age. If you turned 18 in 2015 and never opened an account, you still have contribution room for every year from 2015 onward, even if you open the account today. The CRA tracks this room automatically based on your SIN.

You open a TFSA by visiting a bank, credit union, or investment firm and completing an process form. The institution will ask for your SIN, date of birth, and proof of identity. The process usually takes 10 to 15 minutes in person or online.

How contribution limits work and what happens when you exceed them

The CRA sets an annual contribution limit that increases with inflation, rounded to the nearest $500. For 2024, the limit is $7,000 per year. In previous years it was $6,500 (2023), $6,500 (2022), $6,000 (2009–2021), and $5,500 (2009–2012). The limit applies to you as an individual—it is not shared with a spouse or partner.

Contribution room accumulates. If you never opened a TFSA and you are 30 years old in 2024, you have room to contribute the sum of all annual limits from the year you turned 18 through 2024. The CRA publishes your total available room on your Notice of Assessment each year, and you can also check it online through My Account on the CRA website.

If you contribute more than your available room, you owe a penalty tax of 1 percent per month on the excess amount. For example, if you have $5,000 of room and you deposit $6,000, you owe 1 percent tax on the $1,000 overage each month until you withdraw it. The penalty is calculated by the CRA and you pay it when you file your tax return. The safest approach is to check your available room before making a large deposit.

What you can hold inside a TFSA

A TFSA can hold cash, GICs (may provide Investment Certificates), stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Some institutions limit what you can hold—for example, a basic savings TFSA at a bank might only hold cash or GICs, while an investment TFSA lets you buy stocks and funds. When you open the account, ask the institution what investment options are available.

You cannot hold certain assets: real estate, cryptocurrency, or investments you own a business interest in are not allowed. If you accidentally hold a prohibited investment, the CRA will tax the fair market value of that investment, and you lose the tax-free status for that year.

The type of account does not change the contribution limit. Whether you open a savings TFSA or an investment TFSA, you still have the same $7,000 annual room. The difference is only in what you can buy inside it and how much growth you might see.

How withdrawals and re-contributions work

You can withdraw money from your TFSA at any time without penalty or tax. The withdrawal does not count as income, so it does not affect your may be able to access for income-tested benefits like the Canada Child Benefit, may provide Income Supplement, or provincial housing information. You can also withdraw without notifying the CRA—the institution reports the withdrawal to the CRA automatically.

When you withdraw money, the contribution room does not disappear. On January 1 of the following year, the amount you withdrew is added back to your available room. For example, if you have $7,000 of room in 2024, you contribute $7,000, then withdraw $3,000 in June, you still cannot contribute again in 2024. But on January 1, 2025, you will have $3,000 of new room plus whatever the annual limit is for 2025.

This is different from an RRSP, where withdrawals do not restore contribution room. It is also different from a regular savings account, where there is no contribution limit at all. The TFSA sits between the two: limited contributions, but withdrawals restore the limit.

How investment growth is taxed (or not taxed)

All growth inside a TFSA is tax-free. If you buy a stock for $100 and sell it for $150, you owe no capital gains tax. If you hold a GIC that earns $200 in interest, that interest is not taxed. If you own a mutual fund that pays dividends, those dividends are not taxed. This is true whether you withdraw the money or leave it in the account.

Outside a TFSA, investment income is taxed. Capital gains are taxed at 50 percent of the gain (as of 2024, though this may change). Interest is taxed as regular income at your marginal tax rate. Dividends receive a tax credit but are still taxable. A TFSA eliminates all of this tax, which is why it is valuable for long-term investing.

The tax-free status applies only to growth inside the account. If you withdraw money and then re-contribute it, the re-contribution counts against your annual limit just like any other contribution. You cannot use a TFSA to avoid contribution limits by withdrawing and re-depositing the same money repeatedly in the same year.

TFSA versus RRSP: when to use each

A Registered Retirement Savings Plan (RRSP) is another registered account, but it works differently. An RRSP contribution is tax-deductible—you can deduct it from your income when you file your tax return, which lowers your taxable income and may increase your refund. But when you withdraw money from an RRSP, that withdrawal is taxed as income.

A TFSA has no tax deduction for contributions, but withdrawals are tax-free. This makes a TFSA better for money you might need before retirement, and better for people in a low tax bracket who would not benefit much from a deduction. An RRSP is better for people in a high tax bracket who want to reduce their taxable income now and expect to be in a lower bracket in retirement.

You can have both accounts at the same time. Many people contribute to an RRSP first to get the tax deduction, then use their refund to contribute to a TFSA. There is no rule against this.

Frequently Asked Questions

Can I open more than one TFSA?

You can open multiple TFSAs at different institutions, but the contribution limit applies across all of them combined. If you have $7,000 of room and you open two TFSAs, you can put $3,500 in each one, or $7,000 in one and $0 in the other. The CRA tracks your total contributions regardless of how many accounts you hold.

What happens to my TFSA if I move out of Canada?

If you move out of Canada and lose resident status, you can no longer contribute to your TFSA. Money already in the account can stay there and continue to grow tax-free, but any new contributions will trigger the 1 percent monthly penalty tax. If you return to Canada and regain resident status, you can contribute again.

Do I have to report my TFSA on my tax return?

No. The institution reports your contributions and withdrawals to the CRA, so the CRA already knows about your account. You do not need to list it on your personal tax return. You only report TFSA income if you have earned income inside the account that the CRA has flagged as non-compliant.

Can my spouse or partner access my TFSA if I die?

No. A TFSA is held in your name only and does not automatically pass to a spouse. The money becomes part of your estate and is distributed according to your will or provincial law. Your spouse can open their own TFSA, but they cannot inherit yours directly. Some institutions offer a "successor holder" option that lets a spouse take over the account without probate, but this must be set up before you die.

Does a TFSA affect my may be able to access for government benefits?

TFSA withdrawals do not count as income, so they do not reduce income-tested benefits like the Canada Child Benefit or may provide Income Supplement. The balance in your TFSA may be counted as an asset in some means-tested programs, but this varies by program. Check with the specific program if you are concerned.