Take a Tax Holiday with a TFSA

By Randall Orser | Investments

tfsaThe Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.  Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are also not deductible.

The TFSA isn’t just a vehicle for the ‘rich’ as many would believe. You can put as little as $50 per month into a TFSA. The advantage to the TFSA over the RRSP, is that you can take the money out as needed without being taxed on the withdrawals. Withdrawals will be added to your TFSA contribution room at the beginning of the following year. You can replace the amount of the withdrawal in the same year only if you have available TFSA contribution room. I much prefer the TFSA over the RRSP for anyone who already has a work pension, or is prone to take the funds out before retirement.

You can have more than one TFSA at any given time, but the total amount you contribute to all your TFSAs cannot be more than your available TFSA contribution room for that year. To open a TFSA, you must do the following:

  • Contact your financial institution, credit union, or insurance company (issuer); and
  • Provide the issuer with your social insurance number and date of birth so the issuer can register your qualifying arrangement as a TFSA. Your issuer may ask for supporting documents.

There are three types of TFSAs that can be offered: a deposit, an annuity contract, and an arrangement in trust. Banks, insurance companies, credit unions and trust companies can all issue TFSAs. You can set up a self-directed TFSA if you prefer to build and manage your own investment portfolio by buying and selling different types of investments. For more information, contact a TFSA issuer.

Your TFSA contribution room is the maximum amount that you can contribute to your TFSA. Starting in 2009, TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada.

You will accumulate TFSA contribution room for each year even if you do not file an income tax and benefit return or open a TFSA.

  • The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.
  • The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
  • The annual TFSA dollar limit for 2015 is $10,000.

Our current government in its infinite wisdom has change the TFSA limit, starting January 1, 2016, the annual TFSA dollar limit for 2016 will decrease from $10,000 to $5,500.00. The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.

The TFSA contribution room is made up of: your TFSA dollar limit plus indexation; any unused TFSA contribution room from the previous year; and any withdrawals made from the TFSA in the previous year.


Jacquie was eager to open her TFSA, but she didn’t turn 18 until December 21, 2013. On January 4, 2014, she opened a TFSA and contributed $11,000 ($5,500 for 2013 plus $5,500 for 2014 – the maximum TFSA dollar limits for those years). On the advice of her broker, she had opened a self-directed TFSA and invested in stocks that outperformed the market. By the end of 2014, the value in Jacquie’s TFSA had increased to $11,800. Jacquie was worried that for 2015, she would only be able to contribute $9,200 (the TFSA dollar limit of $10,000 for 2015 less the $800 increase in value in her TFSA through 2014). Neither the earnings generated in the account nor the increase in its value will reduce the TFSA contribution room in the following year, so Jacquie can contribute up to another $10,000 in 2015 to her TFSA.

I believe the TFSA is a great way to save for your retirement, or even to save for some future event, such as a major vacation or even home purchase. Take advantage of the TFSA and do your best to contribute the $5,500 per year, or more as it increases. If you have a pension plan now, or don’t have the income, or type of income, for RRSPs, then the TFSA is definitely for you.

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