TFSA Guide: Tax-Free Savings Account Explained (2025)

What is a TFSA?

A Tax-Free Savings Account (TFSA) is a registered account where all investment growth and withdrawals are completely tax-free. Unlike RRSPs, contributions are not tax-deductible, but you never pay tax on the money again—not when it grows, not when you withdraw it.

TFSAs were introduced in 2009 and have become one of the most flexible and powerful savings tools available to Canadians.

Key TFSA Benefits

• Tax-free growth: Interest, dividends, and capital gains are never taxed
• Tax-free withdrawals: Take money out anytime without tax consequences
• Room restoration: Withdrawals are added back to your contribution room the following year
• No impact on benefits: Withdrawals don't affect OAS, GIS, or other income-tested benefits

2024 TFSA Contribution Limits

Annual Limits by Year

Calculating Your TFSA Contribution Room

Your TFSA contribution room depends on when you turned 18 and became a Canadian resident. Room accumulates starting from:

• 2009 (when TFSAs started), OR
• The year you turned 18, OR
• The year you became a Canadian resident
• (whichever is latest)

Example Calculations

Born in 1990 (turned 18 in 2008):

You've accumulated room since 2009, so your total room is $95,000 (assuming you've never contributed).

Born in 2000 (turned 18 in 2018):

Your room started in 2018:

• 2018: $5,500
• 2019-2022: $6,000 × 4 = $24,000
• 2023: $6,500
• 2024: $7,000
• Total: $43,000

Finding your exact room: Check your CRA My Account online or your Notice of Assessment for your official TFSA contribution room.

Withdrawals & Room Restoration

One of the TFSA's best features is that withdrawals are added back to your contribution room on January 1 of the following year.

Example

Let's say on January 1, 2024, you have:

• $50,000 in your TFSA
• $7,000 in available contribution room

In March 2024, you withdraw $20,000 for an emergency. In September, you want to put it back.

Can you recontribute in 2024? Only the original $7,000 of room. The $20,000 won't be available again until January 1, 2025.

What Can You Hold in a TFSA?

TFSAs can hold the same types of investments as RRSPs:

• Cash and savings deposits
• GICs (Guaranteed Investment Certificates)
• Stocks listed on designated exchanges
• ETFs (Exchange-Traded Funds)
• Mutual funds
• Bonds
• Certain options

What to Avoid

• Day trading: CRA may consider frequent trading as business income, which is taxable
• Non-qualified investments: Shares in private corporations, land, etc. can trigger penalties
• Prohibited investments: Investments in companies where you have significant influence

Smart TFSA Strategies

1. Prioritize High-Growth Investments

Since all growth is tax-free, your TFSA is the ideal place for investments with the highest growth potential. Consider holding stocks or equity ETFs in your TFSA rather than interest-bearing investments.

2. Emergency Fund (Then Invest)

A TFSA is a great place for your emergency fund because you can access it anytime. But once your emergency fund is established, consider investing the rest for long-term growth.

3. Income Splitting in Retirement

TFSA withdrawals don't count as income, so they won't affect income-tested benefits like OAS or GIS. For retirees, withdrawing from a TFSA instead of an RRSP can help minimize clawbacks.

4. Use It or Lose It? No!

Unlike RRSP contribution room which has a deadline, TFSA room carries forward indefinitely. There's no rush to contribute—but the sooner you do, the more tax-free growth you can earn.

5. Give Your Spouse Money to Contribute

Unlike RRSPs, there's no "spousal TFSA." But you can give your spouse money to contribute to their own TFSA without any attribution rules applying. This effectively lets you double your family's tax-free room.

Key Takeaways

• TFSA contributions are not tax-deductible, but all growth and withdrawals are tax-free
• 2025 limit is $7,000; maximum cumulative room is $102,000 (since 2009)
• Withdrawals restore contribution room on January 1 of the following year
• TFSAs are ideal for high-growth investments and emergency funds
• Withdrawals don't affect government benefits like OAS and GIS