What is a TFSA (Tax-Free Savings Account)?
A Tax-Free Savings Account (TFSA) is a registered tax-advantaged savings account that can help you earn money, tax-free, for your next big-ticket item. Whether you're saving for a dream wedding, your first home, or an extended vacation, a TFSA can help you reach your goals sooner, without paying taxes on any investment income you may earn.
When did Tax-Free-Savings Accounts Become Available?
The TFSA was introduced in 2009 as an incentive for eligible Canadians to save.
Who Is Eligible for a TFSA?
TFSAs are available to every Canadian resident, who has attained the legal age of majority in their province with a valid Social Insurance Number (SIN).
To open a TFSA with TD, you must be of the age of majority in your province of residence.
Eligibility for Non-Residents of Canada
Non-residents of Canada with a valid SIN may be eligible for a TFSA; however, contributions made to a TFSA while the contributor is a non-resident are subject to a 1% tax for each month the contribution remains in the account.
If you become a non-resident of Canada after opening a TFSA, you can keep your TFSA and will not be taxed in Canada on the income you earn inside of the account.
What are the Benefits of Opening a TFSA?
There are many benefits of using a TFSA to save:
- Tax-free growth. You pay no tax on any investment income you may earn in the account. You can hold many different types of investments in a TFSA, including savings accounts, Guaranteed Investment Certificates and mutual funds. The higher the return potential, the faster your savings may grow, tax-free.
- Retirement planning. A TFSA can complement your personal RRSP by providing additional tax-advantaged savings when you have no more RRSP contribution room or you are over age 71 and not allowed to hold an RRSP anymore. By contributing to a TFSA, you can keep growing your money, without paying taxes.
- Making Withdrawals. You can withdraw funds from the TFSA without paying tax. This makes the TFSA a great tool to save for big-ticket items such as college, university, retirement, renovations, or a new car. When you're ready to use your funds, you can withdraw without paying tax. This gives you more money for the things you care about.
How Is a TFSA different from an RRSP?
TFSAs and RRSPs offer tax advantages that can help you achieve your saving and investing goals. In choosing one over the other, it's important to understand the differences and the benefits of each type of registered plan.
An RRSP is designed specifically to provide you with income after you retire. Your annual contribution limit is based on your income and the contributions you make are tax-deductible; withdrawals, on the other hand, are subject to taxation.
A TFSA is not designed specifically for retirement and can help you save money for a wide range of goals. The amount you can contribute is not based on your income and your contributions are not tax-deductible1. You can withdraw your money any time you want it2, and you don’t pay tax on those withdrawals. You also don’t lose contribution room when you make a withdrawal – you can recontribute that amount to your TFSA the following year or subsequent years.
How Can I Open a TFSA at TD?
For more information on TFSAs and how you can reach your savings goals, book an appointment and visit a branch at a time that’s convenient for you.
Already have an EasyWeb account? Apply online and fill out an online application if you already have a TD Canada Trust chequing or savings account.
The above information about the Tax-Free Savings Account is based on the information currently available from the Canadian government. To learn more or to check for updates, visit the TFSA information page on the Canada Revenue Agency website.