Tax-Free Savings Account

The TFSA, and the two mistakes that cost people money.

$7,000 of new room this year. Money goes in after tax, grows tax-free, and comes out tax-free — with two rules that catch almost everybody.

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How it works

You contribute money you have already paid tax on. Everything it earns inside the account — interest, dividends, capital gains — is never taxed. When you take it out, there is no tax and no effect on income-tested benefits.

New room is added on 1 January each year: $7,000 for the current year, verified against CRA publications on 2026-08-24. Unused room carries forward indefinitely.

Mistake one: putting money back in the same year

Withdraw $10,000 in June and your room does not increase until the following 1 January. Put that $10,000 back in September and, unless you had $10,000 of unused room already, you have over-contributed — and the CRA charges 1 per cent per month on the excess.

People do this constantly, usually with the best intentions, often while moving money between institutions. If you are transferring a TFSA, ask the receiving institution to do a direct transfer rather than withdrawing and re-depositing. It is the same money and completely different tax treatment.

Mistake two: assuming you have room you do not have

Room begins in the later of 2009 and the year you turned 18 while resident in Canada for tax purposes. Someone who landed in 2023 has room from 2023 — $27,500 — not the $109,000 available to someone resident since 2009. This is the single most common newcomer error I see, and the penalty accrues silently for years before a CRA letter arrives.

Your CRA My Account holds the official figure, though it can lag. The room estimator gives you a working number to check it against.

The beneficiary line worth ten minutes

Designation	What happens on death
Successor holder (spouse or common-law partner only)	Your spouse becomes the account holder. The TFSA continues intact, tax-free, and does not use any of their own room.
Beneficiary (anyone)	The account is paid out. Value at the date of death is tax-free; growth after that is taxable to the recipient.
Nothing named	It falls into the estate — subject to probate, delay, and creditors.

If you are married or in a common-law relationship, successor holder is almost always the right answer. It is one line on a form and most people have never been asked about it.

What goes inside

A TFSA is a container. What you put in it should follow when you need the money — cash or a GIC for an emergency fund, something longer-horizon for retirement savings. Through my insurance licence I can place segregated funds and annuities inside a TFSA. Those carry guarantees and beneficiary designation, and higher fees than an equivalent mutual fund. See the comparison for when that trade is worth making.

Common questions

How much room do I have?

Room accumulates from the later of 2009 and the year you turned 18 while resident in Canada for tax purposes. Withdrawals are added back the following 1 January. The authoritative figure is in your CRA My Account, and it can lag by months if a transfer has not been reported yet. The room estimator gives you a working number in the meantime.

What happens if I over-contribute?

The CRA charges 1 per cent per month on the highest excess amount in each month it remains. The classic mistake: withdrawing $10,000 in June and putting it back in September. That is a fresh contribution, not a restoration — the room only returns on 1 January.

Is it really tax-free?

Growth and withdrawals are not taxed, and withdrawals do not affect income-tested benefits like the Guaranteed Income Supplement or the Canada Child Benefit. Two exceptions worth knowing: US dividends inside a TFSA suffer 15 per cent withholding tax that you cannot recover, and day-trading in a TFSA can be reassessed as business income.

Can I name a beneficiary?

In Alberta you can name a beneficiary, and a spouse can be named as successor holder — which lets them take over the account whole, keeping its tax-free status without using their own room. If you are married or common-law, successor holder is almost always the right designation. This is one of the genuinely valuable things to get right, and it takes one line on a form.

I just moved to Canada. When does my room start?

From the year you became a resident of Canada for tax purposes, if you were 18 or older. Not from 2009. Contributing as though you had fifteen years of accumulated room is a common and expensive newcomer mistake — see New to Alberta.

What can I hold inside it?

A TFSA is a container, not an investment. It can hold cash, GICs, funds, or — through an insurance licence like mine — segregated funds and annuities. Holding only savings-account cash in a TFSA for thirty years wastes the tax shelter; holding something volatile you will need in eighteen months wastes something else.

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