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 savings account offered by Canadian banks and investment firms. 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, which means the institution reports your contributions and withdrawals to the government.

The key difference from a regular savings account: any interest, dividends, or investment gains inside the TFSA are not taxed. If you earn $500 in interest in a regular savings account, you owe tax on that $500. If you earn $500 in interest inside a TFSA, you owe nothing. You also do not owe tax when you withdraw the money, even if it has grown significantly.

TFSAs have been available since 2009. The contribution limit changes most years based on inflation, rounded to the nearest $500. For 2024, the annual limit is $7,000. If you have never opened a TFSA, you have accumulated room going back to 2009 — the total amount you are allowed to contribute over your lifetime, not just this year.

Key Takeaways

  • Money inside a TFSA grows tax-free and you pay no tax when you withdraw it, making it different from a regular savings account where interest is taxable income.
  • The annual contribution limit is $7,000 for 2024, but if you have never opened a TFSA, you have accumulated room from 2009 onward that you can use all at once.
  • You can hold cash, GICs, stocks, bonds, mutual funds, and ETFs inside a TFSA, depending on what your bank or investment firm offers.
  • Withdrawing money does not reduce your contribution room permanently — the amount you withdraw gets added back to your room the following year, letting you re-contribute it later.

Who can open a TFSA and what the account costs

You must be a Canadian resident, at least 18 years old, and have a valid Social Insurance Number to open a TFSA. Most banks offer them with no monthly fee, though some investment firms charge annual account fees depending on what you hold inside.

Opening one takes the same steps as opening any other bank account: you provide identification, proof of address, and your SIN. You can open a TFSA at any bank, credit union, or investment firm that offers them. There is no process process or approval step — if you meet the age and residency requirements, you can open one the same day you walk into a branch or explore online.

How much you can contribute and what happens to unused room

The annual contribution limit is set by the government and indexed to inflation. Since 2009, it has been $5,000, $5,500, $6,000, and $7,000 in different years. For 2024 and 2025, it is $7,000 per year. The CRA website publishes the limit each January.

If you have never contributed to a TFSA, you have accumulated room from 2009 to now. If you were 18 or older in 2009, your total accumulated room is the sum of all annual limits from that year through last year, plus the current year limit. For example, someone who turned 18 in 2009 and has never contributed has roughly $69,500 in accumulated room as of 2024 (the sum of all limits from 2009 through 2024).

Unused room does not expire. If you do not contribute in a given year, that room carries forward. You can contribute $50,000 in a single year if you have the accumulated room and the money to do it. The CRA tracks your room and sends you a notice of assessment each year showing how much you have used and how much remains.

What you can hold inside a TFSA

A TFSA is a container, not a specific investment. What you can hold depends on where you open it. At a bank, you can usually hold cash, GICs (may provide Investment Certificates), and sometimes mutual funds or ETFs. At an investment firm, you can hold stocks, bonds, mutual funds, ETFs, and other securities.

The tax-free growth applies to whatever is inside. If you buy a stock that doubles in value, you owe no capital gains tax. If you hold a bond that pays interest, that interest is not taxable income. If you keep cash in the account earning interest, that interest is tax-free.

Some investments are prohibited inside a TFSA: you cannot hold speculative derivatives, short selling positions, or certain complex options strategies. Your institution will tell you what is allowed when you open the account.

How withdrawals work and what happens to your contribution room

You can withdraw money from a TFSA anytime, for any reason, with no tax consequences. There is no minimum age to withdraw, no waiting period, and no penalty. You straightforward request the withdrawal from your bank or investment firm, and the money moves to your regular account within the normal processing time.

When you withdraw money, your contribution room is not gone forever. The amount you withdraw gets added back to your available room on January 1 of the following year. If you withdraw $5,000 in June, you can re-contribute that $5,000 starting January 1 next year, in addition to that year's new contribution limit.

This is different from other registered accounts like RRSPs, where withdrawals reduce your room permanently. A TFSA is designed to let you move money in and out without losing the ability to use that space again later.

TFSA versus RRSP: when each one makes sense

A TFSA and an RRSP are both registered accounts, but they work differently. An RRSP (Registered Retirement Savings Plan) gives you a tax deduction when you contribute — the money you put in reduces your taxable income that year. A TFSA gives you no deduction, but the growth inside is tax-free and withdrawals are tax-free.

An RRSP is designed for retirement savings. Money inside grows tax-free, but when you withdraw it, you pay income tax on the withdrawal. A TFSA has no retirement requirement — you can withdraw anytime without tax.

If you expect to be in a lower tax bracket in retirement, an RRSP usually makes more sense because you get a deduction now (at a high tax rate) and pay tax later (at a low rate). If you expect to be in the same bracket or higher, or if you want flexibility to withdraw without tax, a TFSA is often better. Many people use both.

How the CRA tracks your TFSA and what happens if you over-contribute

Your bank or investment firm reports all TFSA contributions and withdrawals to the CRA. The CRA tracks your accumulated room and compares it to what you have actually contributed. If you contribute more than your available room, you have over-contributed.

Over-contribution is penalized at 1% per month on the excess amount. If you over-contribute by $1,000 and do not fix it for a year, you owe $120 in penalties (1% × 12 months × $1,000). The penalty stops accruing once you withdraw the excess, but you still owe the penalties that accumulated.

The CRA sends you a notice if you over-contribute. You can check your available room anytime by logging into My Account on the CRA website with your SIN and password. Your institution can also tell you your available room when you ask.

Frequently Asked Questions

Can I have more than one TFSA?

Yes, you can open multiple TFSAs at different institutions. However, your contribution room is shared across all of them. If you have $7,000 in room and you contribute $4,000 to one TFSA, you have only $3,000 left to contribute to any other TFSA that year. The CRA tracks your total contributions across all accounts.

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

You can keep the account open and it continues to grow tax-free, but you cannot make new contributions once you are no longer a Canadian resident. If you move back to Canada, your contribution room is restored and you can contribute again.

Can I use a TFSA to save for a house down payment?

Yes. Unlike an RRSP, there is no restriction on what you use the money for. You can withdraw it anytime for any reason. Some people use a TFSA specifically as a down payment savings account because the growth is tax-free and there is no penalty for early withdrawal.

Do I need to report TFSA income on my tax return?

No. Income earned inside a TFSA is not reported on your tax return. You report only income earned outside registered accounts. The CRA knows about your TFSA because your institution reports it, but you do not need to list it on your return.

What if I inherit a TFSA from someone?

The rules depend on your relationship to the person who died. A spouse or common-law partner can transfer the balance into their own TFSA without using contribution room. Other beneficiaries must withdraw the money, which is not taxable, but the contribution room does not transfer to them.