Planning & Advice

TFSA cheat sheet. 8 things you need to know

November 27, 2019


TFSA cheat sheet. 8 things you need to know

Planning & Advice

One of the simplest ways to save some money on the side is by opening a Tax-Free Savings Account (TFSA). To help you make sense of it, here are the most common questions we hear from our clients about TFSAs.

1. What is a TFSA?

The TFSA is exactly what its name implies: a savings account where you can hold the same investments as an RRSP, but there is no tax to pay on investment income and capital gains. Oh, and withdrawals are tax-free too!

2. Why should I invest in a TFSA?

A TFSA is a good account for saving for short-to-medium term purchases, like a downpayment on a car, a new television, or a trip. They’re also a great way to save for retirement, giving you better tax optimization when you withdraw from your investment accounts.

In life, there will always be emergency expenses — and a TFSA is exactly the sort of rainy day fund you can count on to bail you out of a bad time.

3. When can I start saving with a TFSA?

If you’re a resident of Canada, you can open a TFSA as soon as you turn 18 years old. Annual contribution room starts accumulating from the second you’re eligible for a TFSA; so if you open one when you’re 30, you’ll have twelve years worth of contribution room.

4. How much can I contribute to my TFSA?

With the contribution clock starting from the day you turn 18, the maximum contribution you can make will differ based on your age. The table below outlines the contribution limit by year.

So, if you were 18 or older in 2009 when the TFSA was first introduced and haven’t previously contributed, your contribution room in 2020 would be $69,500. However, if you turned 18 in 2016, you would only be eligible to contribute up to $28,500 without penalty.

YearAnnual Limit

5. If I remove money from my TFSA, does my contribution room increase?

When you make withdrawals, the amounts are added back into your contribution room. But be careful! The contribution room isn’t added back until Jan. 1 of the following year.

6. What happens if I overcontribute?

If you go over your contribution limit in a year, the government can tax you 1% of the highest excess amount for every month the excess amount remains in your TFSA — so the easiest solution is just to take it out as soon as possible.

7. Can I keep my TFSA even if I’m not living in Canada?

You have to be a resident of Canada to open a TFSA, but you’re more than welcome to keep it if you move away. But there’s a caveat: any contributions you make while you’re a non-resident will be subject to a monthly 1% tax. So if you’re not living the country for a while, it’s a good idea to leave your TFSA alone. Adding to it might do you more harm than good.

8. Where can I open a TFSA account?

Many financial institutions can issue TFSAs, including insurance companies, trust companies, and credit unions. We offer them here at CI Direct Investing, too.

Do you still have questions about the TFSA? Would you like to open one, or contribute to an account you already have? Schedule a chat with your CI Direct Investing financial adviser today and we’ll find what works best for you.

A few minutes today could save you thousands tomorrow.
Start investing in under 5 minutes. No hold music. No paperwork.
  1. Greg

    You forgot to mention family health history in your cpp report

  2. vega

    I checked the CDIC today and discovered that if you have a non-registered GIC for $ 100'000 and a TFSA account for 63'000, that we are not insured for $163'000. Am I right or do I calculate the whole thing wrong ????? Thanks for your advise.

    • John Monroe

      A TFSA is not necessarily insured. It depends on what is in the TFSA. If you hold a GIC in a CDIC insured institution it should be. If you hold investments like stocks, bonds, or mutual funds, they will not be insured. According to the CDIC website, TFSAs are a separate category so you could have a GIC in a TFSA and an unregistered account, both are covered up to $100,000.

  3. Alan Berridge

    When I pass away , and my children inherit my TFSA as stated in my will, will they have to pay tax on it?

    • D Campeau

      If you appoint your children as beneficiaries of the TFSA it is not subject to probate or income tax

  4. Don MacDonald

    If I haven't contributed to 63,000, can top it up in one year.

Comments are closed.

Leave a comment