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What is a Tax-Free Savings Account (TFSA)?

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A Tax-Free Savings Account (TFSA) is a program created for Canadians over the age of 18 to set aside money that they can withdraw tax-free. While the amount contributed does not decrease taxable income, any income earned within the account and any contributions made are tax-free when withdrawn. There are several types of investments allowed in a TFSA, these include cash, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, bonds, and certain shares of small business corporations.

Things to know about TFSA’s

Government benefits and credits

Government benefits and credits are not affected by withdrawals made from your TFSA. This includes: Old Age Security benefit, Guaranteed Income Supplement, Employment Insurance benefits, Canada Child Benefit, Canada Workers Benefit, GST/HST credit, and the age amount.

Contribution limit vs. contribution room

There is an annual contribution limit which is determined each year, this can be found here. The maximum amount you can contribute, however, is determined by your contribution room. Your contribution room may differ from the annual contribution limit for a couple of reasons:

  • Each year which you do not contribute the maximum contribution limit from the time you turned 18 years of age, that year’s maximum contribution limit is added to your contribution room.
  • Any withdrawals made from your TFSA are added to your contribution room for the following year.
Losses are not withdrawals

Any losses incurred on investments within your TFSA are not considered withdrawals. This means they do not add to your contribution room for the following year.


Be careful not to contribute more than your contribution room amount. Overcontributing means you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess is in your account.

For more information on a Tax-Free Savings Account, check out the Guide for Individuals provided by the Canada Revenue Agency (CRA).

An image of Melissa Nuij, an administrator and junior bookkeeper at Ruby Business Solutions, and their dog.
Melissa Nuij
Chief Operations Officer

Ruby Business Solutions Inc.
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