TFSA Frequently Asked Questions
- What is a Tax-Free Savings Account (TFSA)?
- What are the major benefits of a TFSA?
- Who is eligible to open a TFSA?
- How much can I contribute to a TFSA per year?
- How will I know what my contribution room is each year?
- Will I get a contribution receipt for tax purposes?
- Are contributions to a TFSA tax-deductible?
- Is there an age limit when a TFSA must be closed, similar to an RRSP?
- What are the main differences between a TFSA and an RRSP?
- Is interest paid on money borrowed to invest in my TFSA tax deductible?
- What Renaissance Investments funds are available for TFSA investment?
Q: What is a Tax-Free Savings Account (TFSA)?
A: A TFSA is a registered savings plan that allows taxpayers to earn investment income tax-free inside the plan; withdrawals of contributions and earnings from the plan are not taxable.
You can hold a variety of investments inside a TFSA, including mutual funds, publicly traded securities, GICs, bonds and certain shares of small business corporations.
Q: What are the major benefits of a TFSA?
A: The major benefits are:
- Investment income earned within a TFSA is not subject to tax.
- Withdrawals are permitted at any time and are not included in taxable income.
- Unlike an RRSP, withdrawals made from a TFSA are added back to your contribution room for the next year.
- Unused contribution room can be carried forward indefinitely.
Q: Who is eligible to open a TFSA?
A: Any individual who is a Canadian resident and 18 years of age or older is eligible to open a TFSA. A TFSA can only be held by a single, personal individual who must make all contributions to the plan and control the assets. TFSAs cannot be held jointly, or held by trusts and corporations.
Q: How much can I contribute to a TFSA per year?
A: Each year you may contribute an amount up to your contribution room for the year. Your contribution room would be made up of three amounts:
- Each year you would be allocated and allowed to contribute at least $5,000 (this annual amount will be indexed to inflation and rounded to the nearest $500 on a yearly basis).
- Any withdrawals made in the previous year would be added to the contribution room for the year.
- Any unused contribution room from the previous year would be added to the contribution room for the year.
Note that excess contributions will be subject to a penalty tax of one percent per month.
Q: How will I know what my contribution room is each year?
A: Canada Revenue Agency will notify you each year on your Notice of Assessment, which you receive after you file your tax return (similar to the way Canada Revenue Agency notifies you of your RRSP contribution room).
Q: Will I get a contribution receipt for tax purposes?
A: No. You will not get a contribution receipt for tax purposes because contributions are not tax-deductible. You will get a confirmation of your contribution either through a transaction confirmation and/or your account statement.
Q: Are contributions to a TFSA tax-deductible?
A: No, TFSA contributions are not tax-deductible.
Q: Is there an age limit when a TFSA must be closed, similar to an RRSP?
A: No, there is no age limit when a TFSA must be closed, nor is there a minimum amount that must be withdrawn from the plan at retirement.
Q: What are the main differences between a TFSA and an RRSP?
A: The main differences are as follows:
- Contributions to an RRSP are tax-deductible while contributions to a TFSA are not.
- Withdrawals from an RRSP are included in income and fully taxable in the year withdrawn, whereas withdrawals from a TFSA are not included in taxable income and are therefore tax-free.
- There is a minimum age requirement to open a TFSA (18 and over) while there is no minimum age requirement to open an RRSP.
- There is no maximum age restriction for TFSAs while RRSPs must be closed by Dec. 31 of the year an individual turns 71.
For a detailed summary of differences, see our TFSA and RRSP comparison table.
Q: Is interest paid on money borrowed to invest in my TFSA tax deductible?
A: No, it is not tax deductible.
Q: What Renaissance Investments funds are available for TFSA investment?
A: All Renaissance Investments funds that are RRSP eligible are available for TFSA investment. Click here for a complete list of available funds.
