Tax-Free Savings Accounts (TFSAs)

A Mackenzie Investments Tax-Free Savings Account (TFSA) is an excellent way for investors to save for their short- and long-term financial goals. TFSAs offer a variety of benefits, including flexibility and tax-free growth. Unlike RRSPs, they can be withdrawn at any time on a tax-free basis and used for any purpose.

The benefits of a TFSA

  • Canadian residents age 18 and over, can save up to $5,500 a year in a TFSA.
  • Contributions are not tax-deductible, but investment returns (i.e. capital gains, interest and dividends) earned in a TFSA are not taxed, even when they are withdrawn.
  • Withdrawals are tax-free and funds can be used for any purpose.
  • Unused contribution room can be carried forward indefinitely.
  • Any amount withdrawn from a TFSA can be re-contributed in a future year without requiring new contribution room.
  • Eligibility for federal tax credits or income-tested benefits are not affected by income earned in a TFSA or withdrawals.

Maximize your savings

  • Talk to an advisor.
  • Start early.
  • Accumulate greater savings by setting up a contribution schedule.
  • Use the Mackenzie TFSA High Interest Cash Builder.
  • Choose from a large selection of investment options offered by Mackenzie Investments.

Contributing to a TFSA

Canadian residents can contribute up to $5,500 to a TFSA each year, indexed annually. If you exceed your TFSA contribution limit, or contribute while you are a non-resident, you will typically pay a 1% over-contribution penalty per month. You do not accumulate contribution room for any year that you are a non-resident.

Although TFSA contributions are not tax deductible, earned investment income and withdrawals are tax-free. Another benefit is that you never lose your total TFSA savings room. Any withdrawals you make from your TFSA may be re-contributed the following year, in addition to the annual contribution limit. You may only re-contribute a withdrawal in the same year you withdraw it if you have the contribution room to absorb it.

Unlike RRSPs, TFSA contribution room is not tied to earned income. It accumulates every year that you file a tax return. If you do not contribute the annual maximum amount to your TFSA, the unused amount will carry forward to a future year. Also, TFSA contributions are not subject to the spousal attribution rules that prevent spouses and common-law partners to split income. This allows couples to gift assets to each other and create tax-free growth on TFSA contributions of $11,000 per family per year. Determine your TFSA contribution limit by using a TFSA contribution calculator.

The Differences between TFSAs and RRSPs

The Registered Retirement Savings Plan (RRSP) was introduced in the 1950s, as a means for Canadians to save for retirement. Since that time, the RRSP has become a staple of retirement savings largely because of the tax-deferral opportunities it provides.

Tax efficiency continues to be a key factor in the accumulation of savings. In 2009, the federal government introduced the Tax-Free Savings Account (TFSA) as a flexible, general-purpose savings vehicle that would help Canadians earn tax-free investment income. It is considered by many to be the single most important savings vehicle for Canadians since the launch of the Registered Retirement Savings Plan. Use a TFSA vs. RRSP calculator to help you determine which plan works best for you.

How can a TFSA work for you?

Talk to your financial advisor about how a TFSA may fit into your financial plan.