Tax-Free Savings Accounts regulations are set out in the Federal Income Tax Act and administered by the Canada Revenue Agency (CRA). Here is an overview of the rules:
You may open a TFSA if you are a Canadian resident who has reached age 18.
Note: The age of majority is 19 for residents of Newfoundland and Labrador, New Brunswick, Nova Scotia, British Columbia, Northwest Territories, Yukon and Nunavut. In those areas, you cannot open a TFSA until age 19, but your accumulation of contribution room will start at age 18.
TFSAs cannot be registered jointly—government rules permit only individual accounts. And, as a registered account, a TFSA cannot be opened under a business or trust name.
The annual contribution limit can change from year to year. Current policy is that the 2016 limit of $5,500 will rise along with inflation in future years, in $500 increments. You can make contributions anytime during the year, either as a lump sum or periodic payments. Additionally, there is no lifetime limit on the amount of your TFSA contributions. And, you are not required to have earned income to accumulate contribution room.
The CRA will track your contribution room. The CRA reports this amount to individuals through the “My Account” function on the CRA web site. http://www.cra-arc.gc.ca/menu-eng.html
If you can't make your maximum contribution one year, you can make up the contribution in later years by carrying it forward. There is no limit on how much contribution room you can accumulate.
Eligible Canadian residents can contribute up to the following amounts for each year:
|2009 - 2012||$5,000|
|2013 - 2014||$5,500|
For example, suppose you have no unused TFSA room from previous years, but have current year limit of $5,500. If you contribute $4,000 to your TFSA early in the year, this means that for the rest of this calendar year, you can only contribute your remaining limit of $1,500. If you do not contribute this amount, it will still be available to you in future calendar years as a carry-forward amount; the carry-forward will be added to the annual maximum for the following year.
If you make a TFSA contribution beyond the maximum allowable amount it is considered an over-contribution. The Canada Revenue Agency (CRA) will assess a penalty of 1% per month on your excess contribution.
You can withdraw money from your account at any time, for any purpose. The timing of withdrawal may depend on what you invested in — for example, non-Redeemable GICs must be held until maturity. Withdrawals can be made tax-free and will not be added to your income for the year.
You may open as many TFSAs as you wish, as long as you adhere to your contribution limit. You are free to transfer your TFSAs between financial institutions at any time without being subject to tax, although there may be a transfer out or other fees. You can also move some or all of your money between eligible investments within your TFSA.
Withdrawals from your TFSA are not taxable income and will not affect your eligibility for income tested government benefits such as the Guaranteed Income Supplement, disability or Old Age Security payments.
As investment income and capital gains within a TFSA are not taxed, any capital losses generated in the account can't be used against taxable gains outside the account.
TFSA assets may be transferred between spouses or common-law partners upon marriage or relationship breakdown. However, it's important to understand the implications of transferring TFSA funds; the spouse who gives some or all of their TFSA funds (due to the divorce/separation agreement) will lose his or her TFSA accumulation room that they've acquired since the launch of TFSA because the transferred amount will not be added back to contribution room.
On the other hand, if a plan holder withdraws assets from the TFSA before giving the funds (due to the divorce/separation agreement), then the amount of the withdrawal will be added back to the contribution room of the transferring spouse for the following year, allowing the plan holder to continue to benefit from tax-free investing. The receiving spouse will be able to contribute to their TFSA, but only to the extent that they have their own contribution room.
Your TFSA may hold a variety of investments including Guaranteed Investment Certificates and Mutual Funds.
Information about the Tax-Free Savings Account is based on what is currently available from the Canadian government and can be subject to change.
† Amounts are indexed for inflation.