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Normandin Beaudry

Budget - A new savings vehicle: the Tax-Free Savings Account (TFSA)


There, in black and white

Bulletin NB Vol. 11 N. 3, March 2008

During the unveiling of its budget on February 26, the Federal Government announced that a new personal savings instrument, the Tax-Free Savings Account (TFSA) will be introduced starting January 1, 2009. The Federal Government's goal is to encourage Canadians to save more by allowing them to set money aside and watch it grow tax-free.

Features of the TFSA

The TFSA will allow taxpayers age 18 or older to contribute up to $5,000 annually through eligible investment vehicles. Investment income (interest, dividends or capital gains) earned through these contributions will not be taxed, and withdrawals will also be tax-free.

As is the case with the Registered Retirement Savings Plan (RRSP), unused contribution room can be carried forward to future years. Individuals can thus contribute more than $5,000 annually to their TFSA if they did not use all of their contribution room in previous years.

There are, however, key differences between a TFSA and an RRSP. Contributions to a TFSA will not be deductible for income tax purposes. On the other hand, funds from the TFSA can be withdrawn at any time for any purpose, and withdrawals will be tax-free. Amounts withdrawn can also be put back in the TFSA at a later date without reducing contribution room.

Benefits of the TFSA

Canadians will be able to use the TFSA to begin saving at a young age for potential future needs, specifically needs not associated with retirement. The RRSP will thus be used primarily to accommodate retirement needs and individuals will be less likely to withdraw funds from their RRSP, as is often currently the case.

The table below presents a comparison of the key features of the TFSA and the RRSP:


The TFSA will provide seniors with a savings vehicle they can use to meet their needs because no age limit is imposed. Seniors currently have only limited access to these types of vehicles once they are over the age of 71 and are required to begin drawing on their retirement savings.

The TFSA will afford employers that offer a group pension plan such as a defined contribution plan, a group RRSP or a Deferred Profit Sharing Plan (DPSP), combined with any other unregistered plan for the receipt of additional non-deductible contributions, a number of benefits pertaining to the implementation of such a plan.

Service providers are, in fact, already planning to offer employers the option of setting up a group TFSA to receive additional non-deductible contributions up to the allowable limits. Unregistered plans will then be used to receive excess contributions beyond the TFSA limit.

The TFSA should also be relatively simple for service providers and employers to administer because they will not be required to issue tax receipts for contribution deductions or investment income.

Adoption Process

It is important to note that the coming into force of the TFSA-related measures outlined in this bulletin is contingent upon the adoption of thefederal budget. It is also important to clarify that these measures would apply only at the federal level if the budget were adopted. The provinces would then need to decide whether or not to follow suit.  

Tax-Free Savings Account (TFSA) in a Nutshell

  • Starting in 2009, Canadian residents age 18 and older will be eligible to contribute up to $5,000 annually to a TFSA, and unused contribution room will be carried forward to future years;
  • Contributions will not be deductible;
  • Capital gains and other investment income earned in a TFSA will not be taxed;
  • Withdrawals will be tax-free;
  • Withdrawals will create contribution room for the same amount for future savings;
  • Contributions to a spouse's or common-law partner's TFSA will be allowed, and TFSA assets will be transferable to a spouse or common-law partner upon death;
  • Neither investment income earned in a TFSA nor withdrawals from it will affect eligibility for federal income-tested benefits and credits;
  • Qualified investments include all arm's length RRSP qualified investments;
  • The $5,000 annual contribution limit will be indexed to inflation in $500 increments.

Examples illustrating the potential use and benefits of the TFSA are presented on the website below:

Canada Revenue Agency:


Please feel free to contact us for additional information.

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