Tax Free Savings Account (TFSA)

Since January 1, 2009 Canadians have been able to invest in Tax Free Savings Accounts (TFSA’s) introduced with the 2008 Federal Budget.

Savings or Investing?

Did you know Tax-Free Savings Accounts don’t have to be actual “savings” accounts”? It’s a bit of a misnomer as the government and most financial institutions haven’t been very clear. TFSA accounts can hold any RRSP eligible investment including stocks, ETFs, mutual funds, GIC’s, segregated funds etc.  A better name would have been Tax-Free Investment Accounts.

You can Open a new TFSA or transfer an existing Account

We offer these types of accounts and there is a definite benefit in adding one to your portfolio.   If you have never opened a TFSA you can deposit up to $63,500 to catch up. If you have previously maxed out your deposits, the current annual amount is $6,000.

TFSA Potential Pitfalls

While many think these accounts are straight forward there are a few technical matters that need to be addressed. Each financial institution administers their TFSA accounts differently, and subtle differences could cost you down the road.

Tax-Free Investing (and Tax-Free Income) is a wonderful thing

Having the ability to invest in just about anything and pull tax free income from an account with a net investment of $63,500 today, is meaningful.  By max funding (current maximum is $6,000 annually) the meaning will become even greater in time.  This could be a real key to achieving the income level you desire in retirement, originally why the TFSA was created.  I urge you to take advantage of this opportunity and as with all registered plans, there are nuances we should discuss.


TFSA account holders may designate their spouse or common-law partner as a successor-holder, and anyone can be the beneficiary.  A successor-holder trumps a beneficiary if both are alive at the time of the original plan holder’s death. And, a beneficiary trumps the deceased’s estate if the successor-holder is also dead. If neither is specified, the assets in the TFSA account become part of the deceased’s estate, losing their tax-sheltered status and becoming subject to probate fees.

The Benefits of Being A Successor Holder

If a surviving spouse is named the successor-holder, he or she becomes the new TFSA holder immediately when the original plan-holder dies — regardless of how the TFSA is invested.  The deceased holder’s assets remain continuously sheltered inside a TFSA with its tax-sheltering privileges continuing, and the successor-holder assumes all rights and privileges associated with ownership of the TFSA contract and its contents. In addition, the successor-holder can consolidate the plans if so desired.

A Spouse as Beneficiary as Beneficiary Can be More Complicated

Designating a spouse as a beneficiary (instead of a successor-holder) imposes a paperwork burden on the surviving spouse, as well as decreased tax sheltering. Similar to the successor-holder designation, a beneficiary designation also allows the surviving spouse to retain the tax-sheltered status of the TFSA without affecting his or her contribution room.  However, any value in excess of the account value on the date of death cannot be transferred to the survivor’s TFSA. Any change in value between the original owner’s death and date of transfer to the beneficiary is no longer tax-sheltered.

Deposit Limit Schedule

2009 $5,000
2010 $5,000
2011 $5,000
2012 $5,000
2013 $5,500
2014 $5,500
2015 $10,000
2016 $5,500
2017 $5,500
2018 $5,500
2019 $6,000

Total $63,500

For MORE DETAILS about how you can benefit from a Tax Free Savings Account please contact our office.

For more answers to other Frequently Asked Questions click here.