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What is a TFSA and how does it work?

A TFSA allows you to save for all your shorter- to longer-term goals, from an annual vacation to buying a home, on a tax-free basis. We break down the basics of a TFSA to help you navigate this investment account option.

What is a TFSA?

A Tax-Free Savings Account (TFSA) is a type of investment account that allows you to save and grow your money tax-free.

How does a TFSA work?

A TFSA can be opened by any Canadian resident with a Social Insurance Number who has reached the age of majority in their province, and you can open more than one account.

Like a registered retirement savings plan (RRSP), a TFSA can hold a wide variety of investments, including mutual funds, exchange-traded funds, stocks and bonds. Your contributions to a TFSA are not tax-deductible, but your savings grow tax-free. Withdrawals you make are also tax-free and can be made at any time.


1. The key benefit of a TFSA is that your investments inside the account grow tax-free; in other words, income and growth aren’t taxed.

2. TFSAs offer flexibility and can be used to save for any financial goal, especially in the shorter term. Unlike with an RRSP, you don’t have to pay taxes on withdrawals, and you can also recontribute any withdrawals the following year.

3. If you don’t contribute the maximum amount allowed in a year, any unused contribution room is carried forward to future years.


1. Your contributions to a TFSA are not tax-deductible, so you won’t receive an immediate tax benefit (i.e., a potential tax refund on the contribution).

2. If you withdraw from your TFSA, the amount of the withdrawal is added to your unused contribution room, but not until the beginning of the following year. That means you will usually have to wait until the new year before you can recontribute any withdrawals.

3. There is no option for a TFSA spousal plan, although you have the option to give your spouse (or common-law partner) money to invest in their own account, without having the income earnings from that money being attributed back to you.

If you’re ready to get started, a financial advisor can help you customize a plan.


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