Understanding Tax-Free Savings Accounts

By , UniversityHerald Reporter

Understanding Tax-Free Savings Accounts

Photo :

While everyone understands the need to save for their golden years, the alarming truth is most people don't have enough money set aside for that period in their lives. Based on a survey conducted among working Canadians, the situation is dire. 

The poll results show that 47% of respondents worry their retirement savings will not be sufficient to support them. 44% believe they'll still be employed full-time when they're 66.

The government recognized the problem earlier on, and in 2009, Finance Canada and Canada Revenue Agency (CRA) implemented the Tax-Free Savings Account (TFSA) to encourage Canadians to save more money.

As we'll only cover the TFSA in brief here, you should consult a professional for advice. Tax lawyers are excellent advisors as they're well-versed with the legal aspects, and you'll avoid unnecessary future issues with the CRA. 

As Rotfleisch & Samulovitch say on their website, the program is a perfect opportunity for individuals to earn tax-free income. Still, you'll have to be careful not to incur TFSA penalties.

Types of Tax-Free Savings Accounts (TFSAs)

There are three types of Tax-Free Savings Accounts:

  • Deposit

  • Annuity Contract

  • Arrangement in Trust

Authorized issuers include banks, credit unions, insurance companies, and trust corporations.

Who's Eligible to Open a TFSA?

Any Canadian resident or non-resident who's 18 years old or older and has a valid Social Insurance Number (SIN) can open a tax-free savings account.

However, as long as individuals fall into the latter category, they'll incur a 1% tax for every month their contribution remains in the account.

If you're in a province where the legal age to enter into contracts is 19, you'll have to wait until your 19th birthday comes around. The good news is that you can carry forward the TFSA room for the year you turned 18, so your maximum contribution when you're eligible is the total of both years.

How to Open a TFSA

To open a Tax-Free Savings Account, you must:

  1. Contact an issuer such as a bank, insurance company, and credit union.

  2. Provide your SIN and date of birth for registration together with other supporting documents the issuer may require.

TFSA Contributions 

You can contribute to a TFSA even if you don't have earned income. For instance, you can give your spouse money for them to place in their account. However, legally, this amount and any revenue it generates won't go back to you.


As the account holder, you're the only one who can manage your TFSA as follows:

  • make contributions

  • make withdrawals

  • determine the investment options

Although you can have more than one TFSA at any point in time, your total deposits can't exceed your contribution room for that year.

Tax Implications

Any income such as interest, dividends, or capital gains earned from your TFSA isn't taxable while held in the account or when you withdraw it.

However, there are circumstances under which you may be liable to pay taxes from your TFSA earnings. If there's no amount payable, you don't have to file a TFSA return. You'll only need to submit one when you owe tax.


This guide provides a basic understanding of TFSAs. You must consult your tax advisor before you take any action.

© 2023 University Herald, All rights reserved. Do not reproduce without permission.
Join the Discussion
Real Time Analytics