What is a TFSA?
The TFSA (Tax-Free Savings Account; CELI in French and in Quebec) is, according to the CRA, a registered savings account that functions like an investment account.[1] The interest, dividends and capital gains it earns are generally tax-free, and you can take money out whenever you want without paying tax.[1]
- It grows tax-free: what your investments earn is not reported.
- You withdraw whenever you want: tax-free and for any reason.
- You contribute with after-tax money: unlike an RRSP, what you deposit is not deducted from your income.[1]
Who can open one, and how?
To open a TFSA you must meet three requirements:[2]
- Be a resident of Canada for income tax purposes.
- Be 18 or older. In some provinces and territories (British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, the Northwest Territories, Nunavut and Yukon) the age of majority is 19: you open the account at 19 and keep the room from the year you turned 18.
- Have a valid Social Insurance Number (SIN).
- Choose where to open itBanks, insurance companies, credit unions and trust companies issue TFSAs, with different savings and investment options.[2]
- Give your detailsYour SIN, your date of birth and any documents the institution asks for.[2]
- Decide what goes insideA TFSA can be a cash account or hold investments. That choice is what sets your return and your risk.
How much can I contribute?
Everyone gets the same annual limit. It is set every January 1, indexed to inflation and rounded to the nearest $500.[3] Room you do not use carries forward and never expires.
| Years | Annual limit |
|---|---|
| 2009 to 2012 | $5,000 |
| 2013 and 2014 | $5,500 |
| 2015 | $10,000 |
| 2016 to 2018 | $5,500 |
| 2019 to 2022 | $6,000 |
| 2023 | $6,500 |
| 2024, 2025 and 2026 | $7,000 |
Your available room is calculated like this:[4]
- the year’s limit
- + unused room from previous years
- + what you withdrew last year
- − what you have already contributed this year
If you have more than one TFSA, there is one single room for all of them.[3] The CRA updates your account information only once a year, in the spring, so keep your own records and confirm with your institution before you contribute.[4]
What can I hold inside?
Permitted investments are generally the same as in an RRSP:[3]
- Cash and savings accounts
- GICs (fixed-term deposits) and bonds
- Mutual funds
- Shares and other securities listed on a designated stock exchange
- Shares of certain small business corporations
Benefits
- Tax-free growth: interest, dividends and capital gains.[1]
- Tax-free, unrestricted withdrawals: for an emergency, a home, a trip or retirement.[1]
- It does not affect your government benefits: income and withdrawals do not change your eligibility for Old Age Security (OAS), the federal supplement for low-income seniors (GIS), Employment Insurance, the Canada Child Benefit, the Canada Workers Benefit or the GST credit.[1]
- Room carries forward: what you do not use today is still available tomorrow.[3]
- Continuity on death: you can name a successor holder so the account continues tax-free (Quebec uses a beneficiary instead).[9]
Limits and common mistakes
| Limit | What it means |
|---|---|
| Not deductible | What you contribute does not reduce your taxable income. The advantage is in the growth and the withdrawals.[1] |
| Over-contributing | The excess is taxed at 1% per month while it stays in the account. The fix: withdraw the excess as soon as possible and report it.[6] |
| Withdrawing and re-depositing in the same year | What you withdraw returns to your room only on January 1 of the next year. If you re-deposit sooner and have no room, it is an excess.[5] |
| Switching institutions by withdrawing | Withdrawing and depositing at another institution counts as a new contribution. Use a direct transfer.[8] |
| Ceasing to be a resident | Contributions made as a non-resident are taxed at 1% per month. You can withdraw tax-free, but not contribute.[3] |
| Non-permitted investments | 50% tax, and 100% on advantages (see above).[7] |
| Asset-tested programs | Some provincial programs look at your assets. For example, Quebec’s Shelter Allowance counts your TFSA balance.[10] |
Withdrawals, transfers and death
Withdrawals. You request them from the institution that issued your TFSA, and you can generally do so at any time of the year. The institution reports withdrawals to the CRA by the end of February of the following year.[5]
Transfers. To move your TFSA to another institution, ask the new one to make a direct transfer: it does not affect your room or create tax, and it can be in kind, in cash or partial. If instead you withdraw $50,000 and deposit it yourself at another bank in the same year, the CRA treats it as a $50,000 excess: $500 per month.[8]
Separation or divorce. With a court order or a written separation agreement, and if you live separate and apart, money can move from one spouse’s TFSA to the other’s as a direct transfer, without affecting either person’s room.[8]
Death. If you named a successor holder, the account continues in their name; its value on the date of death and what it earns afterwards are not taxed to the successor. Quebec does not recognize successor holders and uses a designated beneficiary.[9]
Three examples
The essentials in 5 ideas
- A TFSA is a registered account: you put cash or investments inside.
- Growth and withdrawals are tax-free; contributions are not deductible.
- The 2026 limit is $7,000 and unused room carries forward.
- Over-contributing costs 1% a month; what you withdraw returns the next January 1.
- Switch institutions with a direct transfer, never by withdrawing.
Test yourself
Eight quick questions. Pick an answer and you will see the explanation.
1. What is the annual TFSA contribution limit for 2026?
The CRA states that the 2026 limit is $7,000, the same as in 2024 and 2025.
2. You withdraw $3,000 from your TFSA in June 2026. When do you regain that room?
What you withdraw is added back to your room on January 1 of the following year.
3. Are TFSA contributions deductible from your taxes?
Unlike an RRSP, TFSA contributions are not deductible.
4. You over-contribute $2,000 and leave it for 3 months. How much tax do you pay?
The excess is taxed at 1% per month: $20 a month for 3 months is $60. Withdraw it as soon as possible.
5. Do TFSA withdrawals affect benefits such as OAS or GIS?
According to the CRA, neither TFSA income nor withdrawals affect federal income-tested benefits.
6. You want to move your TFSA to another institution. What is the right way?
A direct transfer does not change your room or create tax. Withdrawing and depositing counts as a new contribution.
7. If you have two TFSAs at different banks, how much room do you have?
Contribution room is a single amount across all your TFSAs.
8. You arrived in Canada in 2024 as an adult. When does your room start to build?
Room starts to accumulate when you become a resident, if you are 18 or older.