Canadians need to save for many different purposes over their lifetimes. Reducing tax on savings can help. That is why the Government introduced the Tax-Free Savings Account (TFSA) in 2009. It is the single most important personal savings vehicle since introduction of the Registered Retirement Savings Plan (RRSP) in 1957.

The TFSA allows Canadians to set money aside in eligible investment vehicles and watch those savings grow tax-free throughout their lifetimes. Your TFSA savings can be used for any purpose, such as maximizing your savings in a tax free environment or to purchase a new car, renovate a house, start a small business, or saving to take a vacation. All Canadians can benefit from using a TFSA.


TFSA Limit or Contribution Room

Year *Actiual Limit $ AmountAccumulated Contribution Limit**


* The TFSA annual contribution limit is indexed to inflation, and rounded to the nearest $500 unless the government makes revisions.  The CRA’s indexation increase for 2024 is 4.7%, down from 6.3% in 2023.

** Anyone age 18 or older and who has a valid social insurance number is eligible to open a TFSA (Age 19 in BC). Contribution room begins accumulating in the year in which a person turns 18, even if they have not yet opened a TFSA account.           


For those TFSA Account Holders who have withdrawn from TFSAs, their crystallized gains and losses from withdrawals are factored in to their TFSA room. The formula is:

Unused TFSA contribution room to date + total withdrawal made in this year + next year’s TFSA dollar limit = TFSA contribution room at the beginning of next year (Jan 1st)


How the TFSA Works

  • Individuals who are age 18 and older, and have a valid SIN, are eligible to save and set money aside tax-free throughout their lifetime (Age 19 to open a TFSA account in BC).
  • Contributions into your Tax Free Savings Account accumulate and earn interest in a tax-free environment.  Income earned and capital gains in your TFSA are not taxed, even when it is withdrawn.
  • Your contributions to a TFSA are not deductible for income tax purposes
  • Your unused TFSA contribution room is carried forward and accumulates for future years.
  • You can withdraw funds available in your TFSA at any time for any purpose — and the full amount of withdrawals can be put back into your TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax.
  • Neither income earned in a TFSA nor withdrawals affect your eligibility for federal income-tested benefits and credits.
  • You can provide funds to your spouse or common-law partner to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.


TFSA Penalties

Where an investor (referred to as TFSA Account Holder) is non-compliant with the CRA TFSA rules, the holder will incur penalties, for reasons such as:

  • TFSA Excess Contributions
  • Tax payable on non-qualified or prohibited investments 

The holder is subject to special tax on advantages, being a 1% per month penalty for any month in which there is an excess amount in the TFSA at any time in the month.  As a result, there is tax payable even if the excess amount is withdrawn in the same month in which it is contributed.

The TFSA unused contribution room is carried forward into the next year, and there is no deadline for TFSA contributions.  It is recommended to make withdrawals by December 31st in any year in order to have the amount withdrawn added back earlier to the accumulated TFSA contribution room in January of the following year.


Macnaughton & Ward Financial represents many Financial Institutions offering TFSA’s in the form of High Interest Savings Accounts (HISA), GIC’s, Guaranteed Investment Funds, Segregated Funds, Equity Linked GIC’s and more. 


Contact our office today to connect with a financial advisor about opening a TFSA that suits your personal circumstances and financial goals.


Updated:  February 2024