Tax-Free Savings Account

Individuals who are 18 years of age or older may contribute annually to a TFSA and income earned on such amounts is sheltered from income tax. The maximum amount that can be invested in 2013 is $5,500.14 Unlike the RRSP, TFSA contributions are not deductible for tax purposes. However, capital and income withdrawals are not taxable.

The following table compares the main features of the most common registered plans, i.e. RRSP, RESP and TFSA.15

RRSP RESP TFSA
Contributions
Annual maximum Lesser of:

  • 18% of previous year’s earned income
  • Annual limit ($23,820 in 2013)
No limit
  • $5,500/year since 2013
  • $5,000/year from 2009-2012
Cumulative limit None $50,000 None
Deductibility Deductible Not deductible Not deductible
Unused contributions room Can be carried forward
Excess contributions
  • $2,000 permitted
  • Penalty of 1% per month in excess of that amount
Penalty of 1% per month Penalty of 1% per month
Withdrawals
Taxation Taxable Partially taxable Non-taxable
Specific conditions None Beneficiary must pursue post-secondary education None
Annual maximum
  • None
  • Withdrawals do not create new contribution room
  • Unlimited for full-time studies16
  • $2,500 per part-time session
  • None
  • Withdrawals create new contribution room next year
Particularities based on savings objectives
Education
  • Withdrawal limits applicable17
  • Withdrawals taxable if not repaid within prescribed times
  • Annual contributions attract grant
  • Limited life of plan
  • Mechanism that responds to ongoing savings needs regardless of objectives
  • No maximum life
Home purchase Not intended for this purpose
Retirement Accumulated savings must be withdrawn or transferred to another vehicle before December 31 of the year of the annuitant’s 71st birthday

14 Amount indexed annually, rounded to the closest $500. The contribution limit for 2009-2012 was $5,000.
15 Parents who want to save for the financial security of a handicapped child can also invest in an RDSP (see Section 4).
16 Limit of $5,000 for first full-time session.
17 Under terms of Lifelong Learning Plan ($20,000) and HBP ($25,000).