Tax Bulletin - Answering Your TFSA Questions

January 08, 2019

Since the introduction of the Tax-Free Savings Account or TFSA in January 2009, millions of Canadians have opened one or more TFSAs. Clearly, many Canadians are comfortable with including TFSAs as part of their financial plans.

Unlike Registered Retirement Savings Plans (RRSPs), the TFSA is a tax-paid savings vehicle. It allows individuals to save for many purposes, such as buying a home, starting a small business, buying a new car or putting money away for a child’s wedding. TFSAs are also a lot more flexible than an RRSP, as you are able to take money out without impacting your ability to use a TFSA again in future years. RRSPs are ill-suited for these shorter term savings goals. And TFSAs can also be used to save for retirement. In fact, for some individuals, having a TFSA at retirement may be more beneficial than an RRSP as TFSA withdrawals won’t impact income-tested benefits.

What makes a TFSA significantly different than other tax deferred plans such as an RRSP is how contributions and withdrawals are handled. Unlike an RRSP, contributions to a TFSA will not give rise to a tax deduction (and that’s why we say a TFSA represents tax-paid savings). When money is withdrawn, the accumulated contributions and income you receive will not be taxable.

In the rest of this bulletin, we’ll address many of the common questions people are asking about the TFSA.

Download our full tax bulletin