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If you’re a Canadian resident with a Social Insurance Number (SIN) who has reached the age of majority (18 or 19, depending on your province) you can open a TFSA. You don’t need to earn an income to contribute.
Note:The TFSA accumulation of contribution room starts at age 18 regardless when the account is opened, or in 2009.
A TFSA is offered as sole ownership. TFSA’s cannot be held jointly under a business or trust name.
Contribution limits for 2009-2024
If you can't make your full contribution one year, you can make up the contribution in later years. That means if you have any unused contribution room from a previous year(s), it will automatically be added to the contribution room for the year current year.
How carry-forwards work
Let’s say you have contributed the maximum amount to your TFSA each year since it became available in 2009 and you have not made any withdrawals.
The current year’s contribution limit is $6,000 and so far this year, you have put $4,000 into your TFSA. If you do not contribute an additional $2,000 this year, $2,000 in contribution room will be added to your annual contribution maximum the following year and will continue to carry forward into future calendar years until you make up the contribution.
The Canada Revenue Agency (CRA) tracks your contribution room and reports this amount through the “My Account” function on the CRA web site (opens in new window).
If you make a contribution beyond the maximum allowable amount, it is considered an over-contribution. The CRA will charge a penalty of 1% per month on your excess contribution.
A TFSA is NOT limited to high interest savings. Like a RRSP, it can hold a variety of investments, including stocks, bonds, ETFs, mutual funds, pools, etc.
You can withdraw money at any time, for any purpose. The timing of your withdrawal may depend on what you invested in—for example, non-redeemable GICs must be held until maturity. Withdrawals are tax-free and are not added to your income for the year. Any withdrawal is added back to your contribution room the following year.
Investment income and withdrawals are not included as income for tax purposes, which means they will not affect your eligibility for Federal income-tested government benefits and credits such as the Canada Child Tax Benefit, the Working Income Tax Benefit, the Guaranteed Income Supplement, Old Age Security (OAS) or the Goods and Services Tax (GST) credit.
You may transfer TFSAs between financial institutions at any time without being taxed, although there may be a transfer out or other fees. However if you withdraw and recontribute to a TFSA in the same year it could result in an over contribution status.
Investment income and capital gains within a TFSA are not taxed, so any capital losses generated in your account can't be used against taxable gains outside your account.
Note: TFSA regulations are set out in the Federal Income Tax Act and are administered by the CRA.
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