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 2015 is $10,000.11 Unlike the RRSP, TFSA contributions are not deductible for tax purposes. However, capital and income withdrawals are not taxable.

Consider making a donation to your child or adult grand-child to invest in a TFSA so that the amounts invested can earn income tax-free.

The following table compares the main features of the most common registered plans, i.e. RRSP, RESP and TFSA.12

Annual maximum Lesser of:

  • 18% of previous year’s earned income
  • Annual limit ($24,930 in 2015)
No limit
  • $10,000/year since 2015
  • $5,500/year in 2013 and 2014
  • $5,000/year from 2009 to 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
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 studies13
  • $2,500 per part-time session
  • None
  • Withdrawals create new contribution room next year
Particularities based on savings objectives
  • Withdrawal limits applicable14
  • 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 these purposes
Retirement Accumulated savings must be withdrawn or transferred to another vehicle before December 31 of the year of the annuitant’s 71st birthday

11 Ceiling of $5,500 in 2013 and 2014 and $5,000 for 2009 to 2012.
12 Parents who want to save for the financial security of a handicapped child can also invest in an RDSP (see Section 4).
13 Limit of $5,000 for first full-time session.
14 Under terms of Lifelong Learning Plan ($20,000) and HBP ($25,000).