What is a Tax Free Savings Account?

The TFSA is a registered savings account that allows taxpayers to earn investment income tax-free. Contributions to the account are not deductible for tax purposes, and withdrawals of contributions and earnings from the account are not taxable.  Any individual who is a resident of Canada, 18 years of age or older would be eligible to establish a TFSA.

Each year you could contribute an amount up to your contribution room for the year. The TFSA contribution room will be determined by the CRA for each eligible individual who files an annual income tax return.

You can withdraw any amount in the account at any time for any reason. Similar to an RRSP, excess contributions to a TFSA will be subject to a 1% per month penalty tax until withdrawn. The big advantage to the TFSA is that any income will not be taxed either while held in a TFSA or upon withdrawal.

The Government of Canada announced that since withdrawals from the TFSA are not considered to be "income, they will have no impact on government benefits or credits, such as GIS or OAS, or on the Canada Child.

Individuals will be able to name a surviving spouse or partner as a "successor account holder, in which case the TFSA will continue to be tax-exempt. Alternatively, the assets of a deceased individual's TFSA can be transferred to a surviving spouse or partner's own existing TFSA contribution room.