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Tax Free Savings Account: The basics


Rubina Ahmed-Haq

November 25, 2019
Saving strategies

The Tax-Free Savings Account (TFSA) turned ten this year and since 2009 everyone in Canada over the age of 18 and who has a valid social insurance number (SIN), is eligible to open a TFSA. However, despite being around now for a full decade, many Canadians still don’t understand how a TFSA works and how it can benefit your overall savings strategy.

As of 2016, data from Statistics Canada shows that there were 18,260,500 TFSA accounts open in Canada. However, of these accounts, over 8 million had absolutely no transactions during the year. This suggests that while a lot of Canadians may have a TFSA, many are not contributing to their TFSAs on a consistent basis. If you’re considering a TFSA to help you build wealth and save for the future but still have questions, here are the TFSA basics you need to know to help you understand how to incorporate TFSAs into your overall savings strategy.


Like a Registered Retirement Savings Account (RRSP), a TFSA is also a registered account but TFSAs are subject to different tax regulations. For instance, the money you contribute to a TFSA and the returns earned by your investment while held in your TFSA are not subject to income tax when you withdraw funds. This is an important distinction because the money withdrawn from an RRSP is taxed as part of your income for the year the money is removed from the RRSP.

Contribution limits explained

There is a limit as to how much you can contribute to your TFSA each year and this amount may vary from year to year. The good news is that you can add any unused TFSA amount from one year to subsequent years. In 2019, for instance, the yearly contribution limit set by the federal government was $6,000 bringing the total amount you can put into your TFSA to $63,500 if you were eligible to contribute every year since the TFSA was introduced in 2009.

Another advantage of a TFSA is that you can withdraw money from your TFSA at any time and the amount you take out of your TFSA can be replaced without penalty as early as the following year.

More than just a savings account

Even though a TFSA may have “savings” in its name, a TFSA offers considerably more flexibility than a simple savings account. Unlike a savings account, you can hold such things as GICs and even stocks and bonds in a TFSA which makes a TFSA an excellent means of investing over a longer period of time.

You can even open more than one TFSA but keep in mind that the total amount you are permitted to contribute across your TFSAs cannot exceed the annual contribution limit. You can get an updated assessment of your available TFSA headroom by contacting the Canada Revenue Agency.

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Rubina Ahmed-Haq - Author bio

Rubina is a journalist and personal finance expert and appears regularly on TV and radio across Canada including the CBC, Global News Toronto, and Global News Radio 640 Toronto.