A TFSA is a registered account that is setup so that any growth or income received within the plan will not attract tax, even on redemption.
TFSAs were introduced by the federal government in 2009. Each year, every adult over 18 years of age received $5,000 in TFSA contribution room for years 2009-2012 and for years 2013 forward will receive $5,500 in contribution room, with the exception of 2015 where the limit was $10,000.00. This amount is carried forward and does not evaporate if not used by yearend. If the taxpayer was over 18 in 2009, and they have not contributed anything to their TFSA in the past, they have $46,500.00 that they could contribute to a TFSA.
When redemptions are made from a TFSA, the amount withdrawn from the TFSA will be added back to the contribution limit January 1 of the following year. Contributions to a TFSA are not tax deductible.
Although an individual may have more than one TFSA, the aggregate of all the deposits into all TFSA’s may not exceed the personal TFSA contribution limit. If the limit is exceeded, there will be a penalty assessed equal to 1% of the over contribution per month.
Most people are unaware that a TFSA can be invested in more than just a savings account, and with contribution limits of $31,000 and growing, it has become a significant tool in financial planning.