Tax Free Savings Accounts-an introduction

If you’re not up for some Monday education, look away now. I’m working to be able to simply explain our retirement options up here in the great white north, for my benefit and maybe yours 🙂

Let’s start with TFSA’s. I like ’em, and think you should to.

TFSA – Tax Free Savings Accounts – are a device?…tool?…product, maybe? Devised by the CRA in 2009 (Canada Revenue Agency – my simple mind does not like their name because I’ve never received any revenue from them.)

The TFSA program began in 2009. I wasn’t in Canada at that time, so it was alien to me when I got back. Basically, it’s a way to set money aside tax-free throughout your lifetime. You don’t need any income to put cash away, and as a result contributions to a TFSA are not deductible for income tax purposes like they are with an RRSP (Registered Retirement Savings Plan). Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn – yep! Withdraw the funds at ANY time and don’t pay any tax.

Did I stutter?! No tax on principal, no tax on the interest, and not tax on the withdrawal! It’s a beautiful thing! For a more in depth look on withdrawing, check out 2 cents’ article here

Here’s the catch -you can’t put ALL your money into a TFSA. The amount you can put into the account has an annual maximum,  and that maximum has changed over time. You can, however, accumulate TFSA contribution room for each year even if you do not file an income tax and benefit return or open a TFSA.

This is good news for me, since I haven’t used this tool….yet 😉

The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.

The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.

The annual TFSA dollar limit for 2015 is $10,000

We may have a good lookin’ prime minister these days, but his appeal is a little duller when you learn that the 2016 TFSA dollar limit has been reduced to $5500 again.

Since I wasn’t resident in Canada for any of 2009, I don’t get to count that year against my contribution room. But, even though I only arrived back into Canada half-way through 2010 I DO get to count all of that. Awesome.


$5K x 2010, 2011, 2012= $15k


$5.5K x 2013, 2014 and 2016 = $16.5k

$10K x 2015 = $10k

Total – $41,500 worth of TFSA contribution room! Looks like I have a place to put my (eventual) investment cash 🙂

My next task? Decide on the structure of the TFSA since a TFSA can be structured as a simple savings account or as an investment account. A TFSA is generally permitted to hold the same investments allowed in an RRSP—including cash, term investments, mutual funds and individual securities such as stocks and bonds.

Did you learn something? Do you have your TFSA set up yet? No? DO IT!

Next time, we’ll take a look at where to put that cash, unless of course you have a magic land of amazing interest that you’ll share with me.