TFSA Frequently Asked Questions (Tax-Free Savings Account)

Q: What is a TFSA (Tax-Free Savings Account)?

A: Introduced by the Canadian government in 2009, the Tax-Free Savings Account (TFSA)
is a registered savings account that allows you to earn tax-free investment income.
You can think of a TFSA as a “basket” that can hold eligible investments.
Any interest, capital gains, and dividends earned inside the TFSA are completely tax-free.

Q: What are the benefits of having a TFSA?

A: Flexibility: You can withdraw funds from your TFSA at any time
for any reason — and all withdrawals are tax-free.
Tax-Free Growth:
All investment income earned within the TFSA is exempt from taxation, and you can hold a wide range of eligible investments.

Q: What are the eligible TFSA investment products?

A: The following are common eligible investments for TFSA accounts:
cash, mutual funds, Guaranteed Investment Certificates (GICs), stocks, and bonds.

Note: If your TFSA investments involve frequent day trading, the CRA may consider such activity as business income,
and your profits could be taxable. Therefore, it’s recommended that TFSA investors adopt a long-term investment strategy.

Q: Do I get tax benefits just by putting money into a TFSA?

A: Yes. The main advantage of a TFSA is that all growth and income earned within the account are tax-free.
However, any losses incurred inside a TFSA cannot be used to offset other income for tax purposes.

Q: Am I eligible to open a TFSA account?

A: Any Canadian resident aged 18 or older who has a valid
Social Insurance Number (SIN) is eligible to open a TFSA.

Q: How much contribution room do I have in my TFSA?

A: If you were eligible to open a TFSA since 2009, your contribution room has been accumulating annually.
For example, if you’ve never contributed to a TFSA from 2009 to 2021, your total contribution room would be
CAD $75,500.

You can find your exact contribution room by logging into your CRA My Account or contacting the CRA directly:

Website: www.cra-arc.gc.ca

Phone: 1-800-267-6999

Q: What happens if I exceed my TFSA contribution limit?

A: If you contribute more than your TFSA limit, the CRA will charge a
1% penalty per month on the excess amount.
Example: If you over-contribute by CAD $5,000, you’ll be charged $50 per month in penalty (5,000 × 1% = 50).

Q: How can I avoid exceeding my TFSA limit?

A: Always check your available contribution room before depositing.
Be especially careful with withdrawals — if you withdraw money from your TFSA, you cannot re-contribute that amount
in the same year unless you have unused room.
Withdrawn amounts can only be re-contributed starting January 1 of the following year.

Example: An investor has a TFSA limit of CAD $20,000 and contributes the full amount this year.
The investments grow to CAD $25,000. Later, the investor withdraws all $25,000.
For the rest of that year, they cannot re-deposit any funds because their limit for that year is already used up.
On January 1 of the next year, their new contribution room becomes CAD $25,000 (the withdrawn amount)
plus any new room added by the government for the new year.

Q: Can I continue contributing to my TFSA if I still have unused room this year?

A: Yes. You can continue contributing until you reach your annual limit.
Example: If your total TFSA limit is CAD $20,000 and you’ve only contributed CAD $15,000,
you still have CAD $5,000 of contribution room available this year.