Tax-Free Savings Account (TFSA) for Newcomers: Your Guide to Investing in Canada

If you’re new to Canada, long-term financial security may be a top priority for you. You may be keen to start putting aside money or investing it for your future.

Whether you’ve brought funds from your home country or plan to invest your Canadian income, a Tax-Free Savings Account (TFSA) is one of simplest and most popular ways to grow your money.

This article gives you an overview of how the TFSA works and why it can be valuable for newcomers who are settling down in Canada.

What is a Tax-Free Savings Account (TFSA)?

A TFSA is a registered savings account that helps you grow your money tax-free. Any earnings in the account, whether they are in the form of interest, dividends, or capital gains, will not be taxed.

Who Can Open a TFSA?

You may be eligible to open a TFSA if:

• You are a resident of Canada (permanent resident, citizen, or an eligible work permit or study permit holder),

• You are at least 18 years of age (or the age of majority in your province of residence), and

• You have a Social Insurance Number (SIN).

Can Newcomers to Canada Open a TFSA?

As a newcomer, you can open a Tax-Free Savings Account as soon as you arrive, provided you meet the above criteria. There is no income requirement, so you don’t need to wait until you find a job.

How to open a Tax-Free Savings Account

You can open a TFSA at a bank like RBC or at another financial institution. An RBC Newcomer Advisor can walk you through how the TFSA works and simplify the account opening process for you.

TFSA Contribution Limits: How Much Can You Contribute?

The TFSA contribution limit for 2025 is $7,000. The TFSA dollar limit is set annually based on inflation and may vary each year.

You don’t need to contribute the full amount each year. Any unused room will carry over to the following year.

How TFSA Contribution Room Works for Newcomers

As a newcomer, if you are 18 years of age (or the age of majority in your province of residence), your contribution room starts accumulating the year you become a tax resident of Canada, even if you don’t open a TFSA immediately.

If you became a permanent resident of Canada in 2023, but only opened a TFSA in 2025, your contribution room will be $6,500 (2023) + $6,500 (2024) + $7,000 (2025) = $20,000.

What Happens if You Overcontribute to Your TFSA?

If you exceed your contribution room, you’ll be charged a 1% monthly overcontribution penalty on the excess amount until it’s withdrawn. Keep in mind that any money you withdraw can only be re-contributed starting the following calendar year when the contribution room is restored.

To avoid this penalty, keep track of all your TFSA deposits, especially if you have more than one Tax-Free Savings Account.

TFSA Benefits for Newcomers

• Tax-free growth: All earnings on your TFSA contributions, including interest, dividends, and capital gains are tax-free. However, unlike with the Registered Retirement Savings Plan (RRSP), TFSA contributions are not tax-deductible.

• Flexible withdrawals: You can take out your money anytime, for any reason, without any taxes or penalties, provided you’re not locked into specific investment products – for example non-redeemable GIC’s must be held until maturity.

• No impact on benefits: TFSA withdrawals don’t count as income and don’t affect your eligibility for government benefits like the Canada Child Benefit.

• No minimum income threshold: You don’t need a job or Canadian income to contribute to a TFSA.

What Investments Can You Make in a TFSA?

Although the name can be confusing, a TFSA is not just a savings account. It can hold a wide range of investments, including cash, stock, mutual funds, ETFs, Guaranteed Investment Certificates (GICs), and bonds.

Withdrawals from Your Tax-Free Savings Account

When you’re new to Canada, having financial flexibility can be important. One of the biggest advantages of a TFSA is that you can withdraw funds from it, tax-free, at any time, for any reason. There is no lock-in period and withdrawals are not taxable.

A TFSA is an ideal way to save for things like:

• A new car

• Furniture for your first home (or even a down payment)

• An emergency fund

• Travel or vacations

• Other short-term goals

The amount you withdraw is added back to your TFSA contribution limit at the beginning of the next year. However, recontributing the withdrawn amount in the same year can trigger an overcontribution penalty if you don’t have contribution room left.

What Happens to Your TFSA if You Leave Canada?

Although most newcomers move to Canada with the intention of making it their home, sometimes, plans change. If you leave Canada permanently, you can still keep your TFSA.

However, keep in mind that:

• Earnings and withdrawals from your TFSA are tax-free in Canada, but may be taxable in your new country of residence.

• You can’t earn new TFSA contribution room while you’re a non-resident.

• You can use the full contribution room for the year in which you leave Canada.

• If you contribute to your TFSA as a non-resident, your contributions will be taxed at 1% per month.

• Any withdrawals made while you’re a non-resident will be added back to your contribution room when you become a Canadian tax resident again.

TFSA vs. RRSP: Which is better?

Both the TFSA and RRSP offer many benefits, and many Canadians use both. But if you’re choosing just one, here’s how they compare:

As a newcomer, a TFSA is often the easier place to start as there’s no income requirement. Also, a TFSA can be used for short- and long-term savings, giving you ample flexibility for a new beginning in Canada.

Speak to an RBC Newcomer Advisor for personalized advice on your savings and investment goals.