What is a Tax Free Saving Account

Basically a tax free savings account is an account that does not charge taxes on any interest earned, capital and dividend gains, or any contributions made, and can be withdrawn without any tax charged. This is a savings account that provides tax benefits in Canada. Like an RRSP (Registered Retirement Savings Plan) TFSA (Tax Free Savings Account) does not have to be a cash savings account, it could hold both cash and/or different investment types like stocks, bonds, mutual funds, or Guaranteed Investment Certificates (GIC). But contributions to TFSA cannot be deductible for tax unlike RRSP.

Jim Flaherty, a former Canadian federal Minister of Finance, introduced the Tax Free Savings Account in the 2008 federal budget and later took effect on January 1, 2009. This tax policy was supported by C.D. Howe Institute, an economist for Bank of Montreal Doug Porter, the Canadian Chamber of Commerce, Canadian Bankers Association, the Canadian Federation of Independent Business, and the Canadian Taxpayers Federation.


The Tax Fee Savings Account, is eligible for Canadian residents that are 19 years and older so they can save or invest. And the money can be withdrawn at any time.


Your assets that sit in TFSA are not protected from creditors. So in the event of a financial judgement or bankruptcy, assets in this account will not be protected from any of such legal actions against an account holder.

Contribution Space

The maximum annual contribution allowed each year from the year this account was created up on till 2012 was $5000. Then at the beginning of 2013 it increased to $5500, the $500 increment was added in order to account for inflation. 2015 federal budget raise the limit of contributions to $10,000, and further removed indexation for inflation. This new policy came Ito action at the beginning of 2015 tax year. In December 2015 the newly elected government reverted to the pre-2015 policies which made the limit $5500 and will be further indexed for inflation. The total cumulative contribution space for a TFSA is presently at $52,000 for all those eligible. Contribution space under the cap can be moved forward to subsequent years, with no upward limit. Over contribution may occur when people might believe that a withdrawal from their TFSA will automatically create an immediate space for contribution and then later recontribute the withdrawn money later in the same calendar year. One must wait till January 1st the following year to recontribute.

Eligible Contributions

The Tax Fee Savings Account can hold any investment that are Registered Retirement Savings Plan-eligible, which includes, depository receipts, royalty units, registered investments, partnership units, mutual funds and real estate investment trusts, warrants, certain debt obligations, rights and options, annuity contracts publicly traded funds on permitted exchanges, instalment receipts, permitted shares of private corporations, and cash denominated in any currency.

TSFA is similar to Individual Savings Account in the UK, also similar to a Roth Retirement Arrangement in the US though TFSA has fewer restrictions.


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