TFSA
A TFSA is a registered account funded with after-tax money in which investment growth and withdrawals are entirely tax-free.
Last reviewed:
Key facts
| Category | Registered accounts |
|---|---|
| Also known as | Tax-Free Savings Account |
| Reported on | Not reported on the T1; growth and withdrawals are not income |
| Where to find your limit | CRA My Account (updated after issuers file, so it lags) |
| Room restored | On 1 January of the year after a withdrawal |
| Effect on benefits | None; withdrawals do not raise net income |
| Authority | Canada Revenue Agency |
What it means in practice
Contributions are not deductible, but nothing inside the account is ever taxed and withdrawals are not income — so they do not affect income-tested benefits such as OAS or the GST credit. Room accrues annually from the year you turn 18, and unused room carries forward indefinitely. Amounts withdrawn are added back to your room, but only on January 1 of the following year — re-contributing in the same year is the single most common cause of overcontribution penalties. Day-trading inside a TFSA can cause the CRA to treat the account as carrying on a business and tax it, which defeats the point.
Re-contributing is the trap
A withdrawal restores contribution room, but not until 1 January of the following year. Putting the money back in the same calendar year is an over-contribution, and the penalty runs monthly on the excess for as long as it sits there. This is the single most common TFSA error we correct. It usually happens to someone who withdrew for a short-term need, was repaid a few months later, and returned the funds without realising the room had not yet come back. The CRA figure in My Account compounds the problem: it is built from issuer filings made after year end, so early in the year it reflects a position several months stale. Track your own contributions rather than relying on it.
When the CRA treats a TFSA as a business
The exemption covers investment income, not business income. An account run with high-frequency trading, short holding periods, securities knowledge and a pattern that resembles a trading operation can be assessed as carrying on a business, in which case the full gains are taxable and the shelter is lost. Holding non-qualified or prohibited investments carries its own penalty tax. A TFSA holding private company shares is the usual trigger, particularly where the holder is connected to the company.
FAQ
Can I hold US stocks in a TFSA?
What happens to a TFSA if I become a non-resident?
Need this applied to your situation?
A definition only gets you so far. Talk to a Montréal CPA about what this means for your return — in English or French.