TFSA

What is a TFSA?


A Tax-Free Savings Account (TFSA) is a new registered account introduced by the Federal Government in the 2008 Budget. Investment income and capital gains in the account will grow tax-free.

Who is a TFSA best suited for?


TFSA is best suited for any Canadian resident who is over 18 with a Social Insurance Number and who would like to save including:

  • Individuals who want to access to funds on a tax-free basis before retirement.
  • Individuals who have maximized their RRSP contributions.
  • Seniors who have savings and are concerned about their investment earnings impacting federal income-tested benefits or credits (i.e. such as Old Age Security benefits, the Guaranteed Income Supplement, or the federal age credit.)

Who is eligible for a TFSA?


All Canadian residents age 18 and older with a Social Insurance Number can open a TFSA.

The age of majority is 19 for residents of Newfoundland and Labrador, New Brunswick, Nova Scotia, British Columbia, Northwest Territories, Yukon and Nunavut which may delay the opening of a TFSA. However, the accumulation of contribution room will start at age 18.

How is a TFSA different from an RRSP?


  • Withdrawals from a TFSA are tax-free and do not result in lost contribution room.
  • Contributions to a TFSA are not tax deductible.
  • With a TFSA you don’t need earned income to accumulate contribution room.
  • There is no requirement to convert the TFSA to an income payment option (i.e. RRIF) at any age.
  • You can give money to your spouse to open a TFSA without being subject to the Canada Revenue Agency’s (CRA) attribution rules.

Do I have to have a particular income level to take advantage of a TFSA?


There is no minimum or maximum income level. Every eligible person will accumulate contribution room each year starting in 2009.

How much am I allowed to contribute per year?


You can contribute each year up to the limit defined for the year. With inflation, the contribution limit and/or increments are decided subject to government guidelines and available on CRA’s website.

If I am earning no income, can I still make contributions to my TFSA?


Yes. If you are eligible, you will accumulate contribution room each year – even if you have earned no income.

If I am unable to contribute in a given year, will I be able to use my unused contribution room in a future year?


Your unused contribution room can be carried forward indefinitely. There is no limit on how much contribution room you can accumulate. Also, TFSA contributions are in addition to any RSP contribution room you may have.

What happens if I over contribute for the year?


Similar to an RSP, a penalty will be assessed by Canada Revenue Agency (CRA) of 1% per month on your excess contribution.

How will I know what my TFSA contribution room is for a given year?


Canada Revenue Agency (CRA) will track your contribution room. CRA intends to report this amount to individuals on their Notice of Assessment and through the “My Account” function on the CRA web site.

Is there a lifetime contribution limit?


There will be no lifetime limit on the amount of your contributions. If you are eligible, you will accumulate every year.

Can I withdraw the money I’ve contributed to my TFSA for any purpose or for specific circumstances?


You can withdraw amounts for any purpose. There are no restrictions.

How often can I withdraw from my TFSA?


As often as you wish (depending on what you’ve invested in) but some financial institutions may charge a withdrawal fee. There will be no withdrawal fees or annual administration fees with a TFSA from ICICI Bank Canada.

Are withdrawals subject to income tax?


No. Withdrawals can be made tax-free and will not increase your income for the year. Since withdrawals will not be taxed and will not be considered taxable income, there will be no impact to your income-tested benefits from the Federal Government, such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS) or credits such as the Age Credit.

If I withdraw money from my TFSA, can I re-contribute this withdrawn amount later on in the tax year?


Withdrawals you make in the current calendar year will be added to your unused contribution room. Amounts can’t be re-contributed until the following calendar year or later.

Can I contribute to my spouse or common-law spouse’s TFSA?


No. However, money you give to your spouse to contribute to his or her TFSA will not be subject to CRA’s income attribution rules. The TFSA allows both you and your spouse to earn tax-free investment income, regardless of which spouse contributed the funds.

If I give funds to my spouse to contribute to his or her TFSA, who will get the income, me or my spouse?


Your spouse owns the TFSA and will earn any investment income and capital gains in the account.

Can I open a joint TFSA account?


No. Similar to registered retirement accounts, such as RSPs, government rules only permit individual accounts.

If I pass away, what happens to the income and gains in my TFSA?


On death your TFSA will not be subject to taxation until the end of the calendar year following the year of death. But tax will be payable on funds that accumulate in the TFSA after your date of death.

If there is a breakdown of a marriage or common-law partnership, what will happen to my TFSA?


TFSA assets may be transferred between spouses or common-law partners on marriage or relationship breakdown but the transfer will not reinstate contribution room of the transferring spouse or reduce the contribution room of the receiving spouse.

Can a non-resident of Canada open a TFSA?


No. TFSAs can only be opened by Canadian residents.

If I become a non-resident while I have a TFSA can I still make contributions?


If you become a non-resident, you are able to maintain your TFSA and will not be taxed on any earnings or withdrawals in the account. However, you will not be allowed to contribute additional funds and no contribution room will accrue for the years in which you are a non-resident.

Can I open more than one TFSA?


Yes. You can open more than one TFSA but, the total contributions to all your TFSA accounts cannot be more than your maximum contribution room for that year plus any carry forward room.

For example, your maximum contribution limit for 2009 will be $5,000, therefore you can open one TFSA to which you contribute $3,000 and another TFSA to which you contribute $2,000, so your total combined TFSA contributions equals the maximum of $5,000.