Home -> Financial Planning -> Tax-Free Savings Accounts (TFSAs)
Tax-Free Savings Accounts (TFSAs)
Income Tax Act S. 146.2, 207.01 to 207.07
Tax-free savings accounts are available for Canadian residents who have reached the age of majority (18 or 19) in their province or territory. When the age of majority in the province or territory is 19, TFSA contribution room still accumulates from age 18.
There is no deadline for contributions to a TFSA, as the unused contribution room is carried forward into the next year. However, a withdrawal in any year increases the TFSA room in the following calendar year. Thus, if you are thinking of making a withdrawal close to year end, make sure it is done by December 31st, in order to have the withdrawal amount added back to the TFSA room sooner.
In a tax-free savings account:
 | all investment income (interest, dividends, trust distributions and capital gains) will accumulate tax-free |
| contributions are not tax-deductible |
| withdrawals are not taxable |
| capital losses are not tax-deductible |
| dividends will not be eligible for the dividend tax credit |
Borrowing to Invest in a TFSA
| Interest on money borrowed to invest in a TFSA is not tax deductible. |
| A TFSA can be used as security for a loan. |
| According to bank representatives, a TFSA cannot be used to provide margin for linked margin brokerage accounts, although this is not disallowed by the Income Tax Act. |
| If you wish to use your TFSA to increase your margin, you can borrow against the TFSA and put the money into your margin account. The interest on the debt would be tax deductible. |
TFSA Technical Changes
On October 16, 2009 the Minister of Finance announced amendments to the Income Tax Act to strengthen the rules applicable to Tax-Free Savings Accounts. The amendments apply to transactions which occur after October 16, 2009. The draft legislation and explanatory notes were released by the Department of Finance on April 30, 2010. The amendments were included in Bill C-47, which became law in December 2010. These amendments:
| Make income from deliberate overcontributions and prohibited investments subject to existing anti-avoidance rules in the Income Tax Act |
| Make income attributable to non-qualified investments taxable at regular income tax rates. |
| Ensure that withdrawals of deliberate overcontributions, prohibited investments, non-qualified investments or amounts attributable to swap transactions, or of related investment income, from a TFSA do not create additional TFSA contribution room. |
| Prohibit asset transfer transactions (swap transactions) between TFSAs and other accounts. |
Information on the changes is included in our TFSA articles below.
What is better - TFSA or RRSP?
TFSA Contribution Rules and Limits / Leaving Canada
Don't Overcontribute! <- very important!!! Read this so you know how it works.
TFSA Investments - qualified, non-qualified, and prohibited
Asset Transfer (Swap) Transactions
Taxes Payable re TFSA - Frequent trading can be a problem!
TaxTips.ca Resources
TFSA vs RRSP Calculator - to help you decide which type of account is better for you.
Borrow to Invest - and Calculator
Are Your Investment Gains and Losses Capital or Income?
Other Resources
TFSA Maximizer Schemes - when interest expense can be deemed unreasonable and disallowed, including the use of a mortgage investment companies (MIC), by Jamie Golombek, CPA, CA, CFP, CLU, TEP. See related CRA warning below.
Canada Revenue Agency (CRA) Resources
Warning: Watch Out For TFSA Maximizer Schemes - including the use of a special use mortgage investment company (MIC)
RC4466 - Tax-Free Savings Account (TFSA), Guide for Individuals - lots of detailed information, and examples.
RC343 Worksheet - TFSA Contribution Room - use this worksheet to calculate your TFSA contribution room for the current year
TFSA information for Registered Plans Administrators
Department of Finance Resources
Budget 2008 tax-free savings account information
Tax Tips:
Everyone should have a tax-free savings account!
Make sure you don't overcontribute - see our article on this!
Revised: September 20, 2024