• What is a TFSA?
• TFSA Information
• TFSA vs RRSP
• TFSA Benefits
• TFSA withdrawals
• Taxation of a TFSA
• TFSA Rules and Regulations

Additonal Resources

• TFSA Pamphlet
• RRSP Calculator

TFSA Regulations

Who is eligible?

Any individual (other than a trust) who is at least 18 years old, who is a resident of Canada and has a valid Social Insurance Number (SIN) can be a holder of a TFSA. You cannot contribute to a TFSA until you turn 18. However, when you turn 18, you will be able to contribute up to $5,000 because this amount will not be prorated.

Contributing to a TFSA

In order to contribute to a TFSA, you must be at least 18 years old, a resident of Canada and have a valid social insurance number (SIN) at the time your Tax-Free Savings Account is opened. You are then a TFSA holder. As the account holder, you are the only person who can contribute to your TFSA.

As long as you are eligible, you can contribute to a TFSA. You don't need employment income to accumulate TFSA contribution room. You can give your spouse or common-law partner money to contribute to a TFSA without that money being attributed back to you. However, all contributions they make to their TFSA must not exceed their TFSA contribution room.

TFSA contribution limit

For 2009, if you are eligible, you can contribute up to $5,000 to your TFSA. After 2009, the annual TFSA dollar limit will be indexed to the inflation rate.

The indexed amount that will be provided will be rounded to the nearest $500 increments. For example, assuming that, in 2009, the inflation rate is 2%, the TFSA dollar limit would remain at $5,000 for 2010 and 2011, but would increase to $5,500 in 2012.

How to set-up a TFSA

You set up a TFSA through a bank, credit union or other financial service provider who is eligible to issue a TFSA. They are referred to as the issuer of the plan.

As the TFSA holder, you will need to provide your social insurance number (SIN) and date of birth to the issuer, so that the issuer can register your qualifying arrangement as a TFSA. Failing to provide this information or providing incorrect information may cause the registration of the TFSA to be denied, resulting in possible tax consequences.

You can have more than one TFSA at the same time, as long as the total amount of all contributions during the year does not exceed your TFSA contribution room for that year.

Self-directed TFSA

You can set up a self-directed TFSA if you prefer to build and manage your own investment portfolio by buying and selling a variety of different types of investments. If you are considering this type of arrangement, you may want to consult with your financial institution.

Termination of a TFSA

A Tax-Free Savings Account ceases to exist at the earliest of:

• the last account holder dies;
• the account is no longer a qualifying arrangement;
• the account is not being administered according to the Income Tax Act.

Transfers

You can transfer the amounts from one of your TFSAs to another one without any tax implication.

Marriage or common-law partnership breakdown When there is a breakdown in marriage or common-law partnership, an amount can be transferred directly from one former spouse or common-law partner's TFSA to the other's TFSA in the following situation. You and your current or former spouse or current or former common-law partner are living separate and apart at the time of the transfer and you are entitled to receive the amount:

• under a decree, order, or judgment of a court, or under a written separation agreement; and
• to settle rights arising out of your relationship on or after the breakdown of your relationship.

The amount of the transfer will not reduce the recipient's eligible contribution room; however, since this transfer is not considered a withdrawal, the transfered amount will not be added back to the transferor's contribution room at the beginning of the following year.

The transfer will not eliminate any excess amount in the TFSA.

Death of a TFSA holder

When the holder of a deposit or an annuity contract under a TFSA dies, the holder is considered to have received, immediately before death, an amount equal to the fair market value (FMV) of all the property held in the TFSA at the time of death.

After the holder's death, the annuity contract is considered to be a separate contract and is no longer considered as a TFSA. All earnings that accrue after the holder's death will be taxable to the beneficiaries.

Generally, amounts paid from the TFSA that represent the income earned in the TFSA after the date the holder died have to be reported by the holder's beneficiaries. These payments have to be included in the income of the beneficiaries for the year they are received.

A beneficiary will not have to pay tax on any payments made out of the TFSA that do not exceed the FMV of all the property held in the TFSA at the time of death.

Non-residents of Canada

If you become a non-resident of Canada, or are considered to be a non-resident for income tax purposes, you will be allowed to keep your TFSA and you will not be taxed on any earnings in the account or on the withdrawals.

No TFSA contribution room will accrue for any year throughout which you are a non-resident. Any withdrawals made during the period that you were a non-resident will be added back to your unused TFSA contribution room in the following year, but will only be available if you resume your residency status in Canada.

You can contribute to a TFSA up to the date that you become a non-resident of Canada.

If you make contributions to your TFSA while you are a non-resident, you will be subject to a tax of 1% per month on the amount you contributed for each month, ending at the earliest of:

when the non-resident contributions are withdrawn from the account and are designated as a withdrawal in connection with the contribution; or when you become resident of Canada.

You may also be subject to a tax of 1% per month on excess TFSA amounts you contributed.

Even if you don't live in Canada, you may have residential ties which deem you to be a resident of Canada. These ties include where your home and personal property are, and where your spouse or common-law partner or dependants reside. Other ties that may be relevant include social ties, a driver's license, bank accounts or credit cards, and provincial or territorial hospitalization insurance.