TFSA (Tax-Free Savings Account)
A TFSA (Tax-Free Savings Account) is a registered Canadian investment account where investment growth is not taxed, and withdrawals can be made tax-free at any time.
Why it matters
- Contribution room accumulates annually based on limits set by the government, and unused room carries forward.
- Unlike an RRSP, TFSA contributions are not tax-deductible, but withdrawals are also not taxed as income.
- Withdrawn amounts are added back to your contribution room the following calendar year, adding flexibility.
Simple example
- Investment growth inside a TFSA — dividends, interest, and capital gains — is never taxed as long as it stays in the account or is withdrawn normally.
- A TFSA can be used for both short-term flexible savings and long-term retirement investing, unlike some other registered accounts.