Tax-Free Savings Accounts

Tax-Free Savings Accounts

  Tax Free Savings Account a very good initiative from Government of Canada was introduced in 2009 with a sole aim to inculcate the habit of saving more for the future. Since recession, it proved to be a good saving tool with no tax on the return earned. Since its beginning in 2009 every Canadian who has attained the age of 18 can contribute after tax $ 5,000 dollar (Which will be increased to $ 55,00 effective JAN/01/2012) into this account. Tax free savings account was started to motivate people to save more for the hard times and provide them some extra incentive for their short term savings goal and retirement planning objective.

Tax free savings account has numerous benefits and it applies to every individual regardless his or her income. Investors can hold any portfolio in their tax free savings account means they can trade in commodities, ETF’s, Mutual Funds, Stocks etc. The most important thing that investors don’t know is that they can withdraw the money held in savings account any time during the year (Except the surrender charges if applicable to the contract) and if they want to re-contribute they are allowed to put all the withdrawals back into the account not in the same year but the following year.

Overall, the benefits of these tax free savings accounts are briefed as follows

  • The earnings which you will make through investments in these accounts will not be taxed.
  • You can always make withdrawals from the account; and you are allowed to re-contribute all the money including the return earned as well as principal back into the account.
  • The investments and income earned will not have any effect on your Government benefits like OAS entitlement, pension credits and also HST credits..
  • The account holder can invest the TFSA money in any investment vehicle of their choice.
  • So investing in tax free savings account is not only beneficial for you in the present, but for your future also. You can reduce the amount of tax that you are required to pay and you can also save from your future.


This plan allows a tax-payer and his/her spouse or common-law partner to each withdraw up to $25,000 from their RRSP to purchase their first home without having to pay tax on the withdrawal if they meet the following conditions: 

  •  They are first time home buyers (i.e., they have not owned a home in any of the five calendar years beginning before the withdrawal date );
  • The home is acquired by September 30 of the year following the withdrawal year; 
  • They begin or intend to use the home as their principle residence within one year from the date of acquisition; and 
  • They start repaying the withdrawal to their RRSP of a 15-year period begging in the 2nd year following the year of withdrawal.

Taxpayers having repaid their withdrawal before the beginning of a year may participate in the plan a second time. Taxpayers qualifying for the disability tax credit (or their close relatives) may participate in the plan even if they are not first time home buyers, provided the home acquired is more accessible or better suited for them. Contribution made to an RRSP less then 90 days before the withdrawal under the plan will not be deductible. Any withdrawal under the plan that is not repaid in a timely fashion to the RRSP will become taxable. 

This plan allow a taxpayer and his/her spouse or common-law partner to each withdraw up to $10,000 per year and $20,000 over a four year period from their RRSP to finance their full-time education without having to pay tax on the withdrawal, provided they meet to following conditions:

  • They are enrolled in a qualifying educational program on a full time basis (lasting at least three months) at a designated educational institution or have receive a written offer to enroll; and 
  • They start repaying the withdrawal to their RRSP over a 10 years period beginning on the earlier of the second year following the last year taxpayer qualified for an education amount and the fifth year following the year during which the first withdrawal was made under the plan. 

Taxpayers with a mental or physical disability may still participate in the plan even if they are no registered on a full-time basis. Contribution made to an RRSP less than 90 days before a withdrawal under the plan will not be deductible. Any withdrawal under the plan that is not repaid in a timely fashion to the RRSP will become taxable. [/vc_column_text

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Age restrictions Minimum: none1
Maximum: no later than the year you turn 71
Minimum: age 18
Maximum: none
Dollar limit $26,230 for 2018 and $26,500 for 2019, indexed for inflation based on growth in the average wage $5,500 for 2018 and $6,000 for 2019 (for future years:
indexed for inflation based on the CPI2 and rounded to the nearest $500)
Contribution room 18% of the previous year’s earned income, up to the dollar limit (contribution room is reduced if you have a pension plan) See dollar limit
Are contributions tax deductible? Yes No
Are withdrawals taxed? Yes No
Is investment income taxed? No No
Do withdrawals impact income-tested government benefits and tax credits? Yes, since it is added to income No
Do withdrawals create contribution room (can you “re-contribute”)? No Yes, equivalent to the withdrawal amount (but not until the year following the withdrawal)
Can you contribute to your spouse’s account? Yes No, but you can give money to your spouse (as a gift) so that they can contribute to their own TFSA
Are the savings taxed upon death? Yes, but there are exemptions for transfers to eligible plans and/or to annuity contracts held by your spouse or dependent (grand)children No (for the value at the date of death)

Quick reference





Retirement savings An RRSP is specially designed to encourage you to accumulate retirement income. However, it must be converted into retirement income by the age limit prescribed by law.
A TFSA can be used to complement an RRSP. It allows you to maximize your contributions and generate tax-free retirement income, without affecting the amount of your income-tested government benefits.
Down payment on a property Choose a TFSA or use the HBP, depending on your situation and financial objectives.
Start contributing to your TFSA now if you’re not eligible for the HBP.
Major expense prior to retirement In addition to not being taxable, TFSA withdrawals can be “re-contributed” in full at your own pace, starting in the year following the withdrawal.
Major expense during retirement (RRSP or RRIF) TFSA withdrawals don’t affect your tax rate or government benefits (Old Age Security and Guaranteed Income Supplement).
Building your estate (to leave an inheritance) Because you can keep saving in your TFSA after age 71, you could use it to invest your mandatory RRIF withdrawals.
Look for investments that include a death benefit and inflation protection.


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