What is a Tax-Free Savings Account? 2022

Learn everything you need to know about tax-free savings accounts, commonly referred to as TFSAs.

What is a TFSA?

A TFSA is a registered savings or investment account, where you do not have to pay any taxes on your gains,
including interest or capital gains earned or Canadian dividends paid.

How does a TFSA work?

You can open a TFSA once you turn 18 and contribute up to the maximum amount allowed each year. You can withdraw
your money at any time without paying a penalty or any taxes.

TFSA Basics

The most important things you need to know about a TFSA are:

• The contribution room rolls over each year, so if you don’t have enough each year to max out your TFSA, you won’t lose your contribution room.

• The Canadian Revenue Agency tracks your contributions.

• You can hold a variety of investments in your TFSA, including mutual funds, ETFs, stocks, bonds, and cash.

• Withdrawals made from your TFSA will only be added back to your TFSA contribution room at the beginning of the following year.

• You do not need to have earned income to be eligible to contribute to a TFSA.

• You can transfer funds between TFSAs without it counting as a contribution.

Advantages

One of the most significant advantages of a TFSA is its flexibility. Unlike an RRSP, you can use a TFSA to
save for anything you like – from a down payment on a home to a dream vacation. Depending on your income level, it may even be a more effective way to save for retirement than opening an RRSP.

The other advantage of a TFSA is right in the name – it’s a tax-free way to save, invest, and earn money. With a TFSA, you don’t have to look at any interest or dividends you earn and then wonder how high your tax bill will be – because all your earnings are tax-free!

Limitations

These are the main TFSA limitations:

• Some investments are prohibited or do not qualify – for example, you can’t hold shares of a company that you
  have a significant interest in (10% or more).

• If you over-contribute to your TFSA, you’ll be charged a penalty of one percent per month on the amount over
  the limit until you remove it.

TFSA Contribution Limits By Year

The TFSA contribution limits by year are as follows:

• From 2009 to 2012, it was $5,000.

• From 2013 and 2014, it was $5,500.

• From 2015, it was $10,000.

• From 2016 to 2018, it was $5,500.

• From 2019 to 2021, it was $6,000.

• For 2022, it is $6,000.

Want to learn more about TFSAs? Reach out to us today if you’d like to learn more about what TFSAs can do for you!