Canadian resident individuals over 18 may open a Tax-Free Savings Account (TFSA) to which they can make the following annual contribution:
- $5,000 for 2009 to 2012;
- $5,500 for 2013 and 2014;
- $10,000 for 2015;
- $5,500 for 2015 to 2018;
- $6,000 for 2019.
This contribution limit is indexed annually and rounded to the nearest $500.
The TFSA allows a broad range of investments, including stocks. bonds, GICs, mutual funds, and any other qualified investments for an RRSP. The contribution is not deductible from the planholder’s income but any interest dividends or capital gains earned from the account, or funds withdrawn from the account, are not taxable. Excess contributions (including withdrawals recontributed to the plan in the same year) and non-resident contributions are subject to a 1% monthly penalty tax. Any unused contribution room may be carried forward indefinitely, and any annual withdrawal may be added to the contribution room of the following year. TFSA assets may be used as loan collateral, but no deduction may be claimed for interest paid on money borrowed for a TFSA contribution. The attri-bution rules do not apply to income earned in a TFSA from a contribution made by the planholder’s spouse. Following the death of a planholder, his/her TFSA income becomes taxable unless his/her spouse or common-law partner is named as the successor account holder or the account balance is transferred to a designated beneficiary (e.g., spouse, common-law partner, or child).