What is the TFSA and how much can I contribute to it?

The Tax-Free Savings Account (TFSA) is an account that provides tax benefits for Canadians. It may contain cash or investments such as mutual funds, certain stocks, bonds, or GICs.

How the TFSA works:

  • All Canadian residents aged 18 and over can contribute to a TFSA.
  • Investment income earned in a TFSA is tax-free.
  • Withdrawals from a TFSA are tax-free.
  • Unused TFSA contribution room is carried forward and accumulates in future years.
  • Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
  • Contributions are not tax-deductible.
  • Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
  • Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.
Annual Contribution Limit:

The annual TFSA dollar limit for 2016 is $5,500.

The annual TFSA dollar limit for 2015 was $10,000.

The annual TFSA dollar limit for 2013 and 2014 was $5,500.

The annual TFSA dollar limit from 2009-2012 was $5,000.

The current cumulative total contribution limit is $46,500.

US Citizens

Please note that the TFSA does not exist in the US and is taxed and treated as a foreign trust by the IRS which requires certain foreign reporting forms to be filed which involve large penalties if they are filed late.

For more information on the TFSA, click here.

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