Tax Free Savings Accounts or TFSAs as they have come to be known were introduced in 2009 by the Federal Government of Canada. The name of the account itself is a misnomer as it is not just a savings account and misconceptions abound. A TFSA account holder can invest cash, bonds, mutual funds, stocks, ETFs, etc. We often hear “TFSA accounts are not worth it”… this is NOT true, TFSA accounts are an account that no taxes are paid on and can be accessed and reused without penalty, which is great. It is the type of investment a person chooses to hold in their TFSA that dictates the good or bad performance. If the investments in the TFSA are not performing then they should be reviewed with an advisor. A TFSA is considered to be a ‘registered’ account with contribution limits that are determined by the government. New TFSA contribution room is created January 1st of each year for anyone who is 18 years of age or older. 

For example, if you turned 19 this year and have not contributed to a TFSA in the past, you would have TFSA room of $6,000 for 2021 and $6,000 for 2022. A total of $12,000 could be invested in the TFSA. The annual new contribution room has been $6,000 for a number of years now. Contribution room can be carried forward each year if you do not make a contribution in any given year. Currently the lifetime limit of a TFSA account is $81,500 per individual as long as you were 18 in 2009. When money is withdrawn from a TFSA account there is absolutely no income tax paid so the proceeds are tax free. 

 Tips 

• Assign a beneficiary to your account and/or a successor holder. The successor holder is only applicable to a spouse. Naming a beneficiary allows funds in the TFSA to bypass an estate at death and therefore avoid probate fees no matter who is beneficiary. 

• It is easier to track only one TFSA account – an individual is responsible for following and maintaining their own personal limits – keep track of contributions and withdrawals. 

• There is a 1% per month penalty for over-contributions (you may not be notified by the government until the following April). 

• Any amount withdrawn from a TFSA counts as new contribution room the following year. Example: $5,000 is withdrawn from the TFSA this year. Next January 1st, $6,000 would be available as new contribution room AND there would be additional $5,000 of new contribution room to take into account the withdrawal from the previous year. 

“Do not save what is left after spending, but spend what is left after saving.” 

- Warren Buffet