Tax Free Savings Account (TFSA)

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The Tax-Free Savings Account (TFSA) was introduced by the Government of Canada in the 2008 federal budget as a means for Canadians to expand their saving strategy for important life purchases.

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How does a TFSA work? Simply put, it’s is a government-registered savings plan. Contributions are made with your after-tax dollars. Income earned inside your TFSA is TAX-FREE and can be withdrawn with no tax penalty. Members have flexible account options, i.e. GICs, Savings accounts, etc. for a lifetime of saving needs.

As they are a registered product, TFSA interest rates mirror other registered Bayview investment products, i.e. RRSPs and RRIFs. Additionally, Bayview offers a Super Savings TFSA account.

To help you understand the TFSA better, we’ve put together some Frequently Asked Questions (FAQs) based on government information. We will update this page as information continues to becomes available.

TFSA Road Test: Frequently Asked Questions (FAQ)

1. What is the Tax-Free Savings Account?
2. Who is eligible to open a TFSA?
3. What kind of investments can you hold in a TFSA?
4. What if I contribute excess amounts in my TFSA?
5. How will TFSAs be taxed?
6. What is the main benefit of saving in a TFSA?
7. How is a TFSA different from an RRSP?
8. How much can you contribute to a TFSA per year?
9. Can I carry unused contribution room from one year over to a future year?
10. Are there any restrictions on withdrawals?
11. What if I borrow to invest in my TFSA?
12. Can I use my TFSA assets as security for a loan?
13. Can I give my spouse or common-law partner (CLP) funds to contribute to a TFSA?

TFSA Tool Box

Government of Canada TFSA Website >>
Canada Revenue Agency TFSA FAQs >>

1. What is the Tax-Free Savings Account?

The TFSA is a federal government-registered savings account that allows taxpayers to earn investment income tax-free within the account. Deposits of after tax money contributed to the account are not deductible for tax purposes. At the same time withdrawals of contributions and interest earnings from the account are not taxable.

Moneys saved in a TFSA can be used for a variety of needs, i.e. new car purchase, house renovations, to start a small business, family vacation, etc. Withdrawn funds can be used for whatever the planholder wishes.

2. Who is eligible to open a TFSA?

In New Brunswick, any Canadian resident who is 18 years of age or older will begin to accumulate contribution room in 2009. However some restrictions apply to the types of products that can be held in a TSFA.

3. What kind of investments can you hold in a TFSA?

A TFSA would generally be permitted to hold the same investments as a registered retirement savings plan (RRSP), such as:

  • GIC
  • Savings Account
  • Mutual Funds are offered by Credential Asset Management Inc.

4. What if I contribute excess amounts in my TFSA?

Similar to an RRSP, excess contributions to a TFSA above and beyond the legislated annual contribution limit will be subject to a 1% per month penalty tax until withdrawn.

5. How will TFSAs be taxed?

The big advantage to the TFSA is that any income and gains on investments held within it will not be taxed either while held in a TFSA or upon withdrawal, hence the name – Tax-Free Savings Account.

6. What is the main benefit of saving in a TFSA?

Because capital gains and other investment income earned within a TFSA will not be taxed, an individual contributing $200 a month to a TFSA for 20 years will accumulate about $11,045 more in savings than if the investment had been held in a taxable savings vehicle (i.e. an unregistered account).

7. How is a TFSA different from an RRSP?

An RRSP is designed specifically to provide an income during retirement. Money deposited to an RRSP is deductible on personal income tax which defers the tax implications until the time of retirement and the money as well as the accrued interest is used as income.

8. How much can you contribute to a TFSA per year?

Each year you can contribute an amount up to your legislated annual contribution limit for the year. Contribution room in a TFSA will be determined by the Canada Revenue Agency (CRA) for each eligible individual who files an annual income tax return.

Your contribution room would be made up of three amounts:

  • First: Each year you will be allocated a contribution limit of at least $5,000 (this annual amount will be indexed to inflation and rounded to the nearest $500 on a yearly basis).
  • Second: Any withdrawals made during the year would be added in kind to the contribution room for the following year.
  • Third: Any unused contribution room from the previous year would be added to the contribution room for the new year.

For example (assuming no indexing):

  • TFSA Unused Contribution Room
    When a TFSA Holder contributes less than the maximum contribution limit, the difference is referred to a unused contribution room.

    • Unused contribution room will accumulate each year.
    • Unused contribtion room is carried forward indefinitely, allowing the Holder to catch up by contribution more than the maximum contribution limit in a future year.
    • A TFSA withdrawal will increase the contribution room for the year after withdrawal. As a result, when amounts are withdrawn from a TFSA they can be re-contributed in the future when funds become available.
    • Canada Revenue Agency can confirm your contribution room. The CRA recommends TFSA holders take advantage of their online service option My Account to obtain the most up-to-date information about their TFSA transactions and available TFSA Contribution Room. Any changes to the holder's TFSAs are uploaded daily as the TFSA information from TFSA issuers is received and processed.
    • In addition to the My Account section of the CRA website, the following are additional resources available to TFSA holders in obtaining confirmation of their TFSA Contribution Room:

9. Can I carry unused contribution room from one year over to a future year?

Yes, the 2008 federal budget proposes no limit on the number of years unused contribution room could be carried forward.

10. Are there any restrictions on withdrawals?

No, you can withdraw any amount from the account for any reason.

That being said, it is important to bear in mind that the same restrictions apply to a TFSA investment product as any other GIC or Term Deposit. So if the TFSA is a non-redeemable 2 year GIC the funds may not be withdrawn until the GIC matures.

11. What if I borrow to invest in my TFSA?

Interest expenses on funds borrowed for the purpose of investing in a TFSA cannot be written off, since both TFSA income and TFSA withdrawals are both non-taxable.

12. Can I use my TFSA assets as security for a loan?

Unlike RRSPs which cannot be used as collateral for a loan, TFSA assets can be used as collateral.

13. Can I give my spouse or common-law partner (CLP) funds to contribute to a TFSA?

No. Unlike a spousal RRSP which allows one person to make contribution’s on their spouse/CLP’s behalf, a TFSA may only be held in the name of the planholder, and only this person can make contributions. A spouse/CLP would of course be free to give funds to their partner who could contribute on his/her own.