What Is a TFSA?
A Tax-Free Savings Account (TFSA) is a registered account available to Canadian residents aged 18+ with a valid SIN. Contributions are made with after-tax dollars, but all growth — interest, dividends, and capital gains — is completely tax-free. Withdrawals are also tax-free and don't affect your eligibility for government benefits like GST credits or OAS.
$7,000
2025 Annual Limit
$102,000
Max Room (since 2009)
18+
Eligibility Age
0%
Tax on Growth
TFSA Contribution Limits by Year
| Year | Annual Limit | Cumulative Total |
|---|---|---|
| 2009–2012 | $5,000/yr | $20,000 |
| 2013–2014 | $5,500/yr | $31,000 |
| 2015 | $100 | $41,000 |
| 2016–2018 | $5,500/yr | $57,500 |
| 2019–2022 | $6,000/yr | $81,500 |
| 2023 | $6,500 | $88,000 |
| 2024 | $7,000 | $95,000 |
| 2025 | $7,000 | $102,000 |
TFSA Rules for Newcomers to Canada
As a newcomer, your TFSA contribution room starts accumulating from the year you become a Canadian resident for tax purposes — not from the year TFSA was created (2009).
Example: If you became a Canadian resident in 2022, your total TFSA room in 2025 is: $6,000 + $6,500 + $7,000 + $7,000 = $26,500
Over-contribution penalty: Exceeding your TFSA room triggers a 1% per month penalty tax. Check your available contribution room on My CRA Account before contributing.
What Can You Hold in a TFSA?
- Cash (savings account)
- GICs (Guaranteed Investment Certificates)
- Stocks (Canadian and US equities listed on eligible exchanges)
- ETFs (Exchange-Traded Funds)
- Mutual funds
- Bonds
- Options and other derivatives
TFSA vs RRSP — Which Is Better?
- Choose TFSA if: You're in a low income bracket now, expect to be in a higher bracket at retirement, want flexibility to withdraw anytime, or are a newcomer still in early career
- Choose RRSP if: You're in a high income bracket now and want to defer tax, or you're saving specifically for retirement or a first home
- Best approach: Use both. Maximize TFSA first for flexibility, then contribute to RRSP to reduce taxable income
TFSA Withdrawal Rules
- Withdrawals are always completely tax-free
- Withdrawal amount is added back to your contribution room the following January 1st
- You can re-contribute withdrawn amounts starting the next calendar year (not immediately, unless you have unused room)
- Withdrawals don't count as income — they don't affect OAS, GIS, or benefit clawbacks
Frequently Asked Questions
Can permanent residents open a TFSA?
Yes. Any Canadian resident for tax purposes who is 18 or older with a valid SIN can open a TFSA. This includes permanent residents. Your contribution room starts accumulating from the year you became a Canadian resident for tax purposes.
How much TFSA room do newcomers have in 2025?
It depends on when you arrived. If you became a Canadian tax resident in 2025, you have $7,000 of room. If you arrived in 2023, you have $20,500 ($6,500 + $7,000 + $7,000). The maximum room (if you've been a resident since 2009 and are 18+) is $102,000 in 2025.
What happens to my TFSA if I leave Canada?
If you become a non-resident, you can keep your TFSA and continue to hold your investments, but you stop accumulating new contribution room and may face a 1% per month tax on any new contributions made while non-resident. Withdrawals while non-resident may be subject to withholding tax. Consult a tax professional before leaving.
Can I invest US stocks in a TFSA?
Yes — US stocks and ETFs listed on eligible exchanges can be held in a TFSA. However, US dividends paid into a TFSA are subject to a 15% US withholding tax (since the IRS doesn't recognize the TFSA's tax-free status). For US dividend stocks, holding them in an RRSP is more tax-efficient.
Is TFSA income reported on my tax return?
No. Income earned inside a TFSA (interest, dividends, capital gains) does not need to be reported on your Canadian tax return. Withdrawals are also not reported as income. You'll receive a T4A or TFSA contribution/withdrawal record for your personal records, but you don't report TFSA income to the CRA.
What is the TFSA contribution limit for 2025?
The TFSA annual contribution limit for 2025 is $7,000, the same as 2024. This is indexed to inflation and rounded to the nearest $500. The cumulative limit for someone who has been eligible since 2009 and has never contributed is $102,000 in 2025.