Sun Life Tax-Free Savings Account

An investment format that lets you save up to $6000 per year without having to pay taxes on the growth, a TFSA is an intelligent way to save money. The investment grows tax-free and can be used at any point in your life, whether in a few years or way into the future.

What is a TFSA?

An investment format that lets you save up to $6000 per year without having to pay taxes on the growth, a TFSA is an intelligent way to save money. The investment grows tax-free and can be used at any point in your life, whether in a few years or way into the future.

A TFSA is right for you if:

  • You want to have some money saved in case of an emergency

  • You want to increase your retirement savings in a tax-efficient manner, apart from what is already present in your RRSP.

  • You already have money saved in a regular savings account and do not want to pay taxes on it.

  • You have contributed the allowed total to your RRSP

  • You want to have savings without paying taxes on the income you have invested

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What is the eligibility requirement for a TFSA?

  • You must be a resident of Canada

  • You must be over 18 years of age

How does a TFSA work?

  • You can make contributions up to a total of $6000 every year in a tax-free savings amount.

  • If you have not reached the $6000 limit in the previous year, you can use the space to add more in the current year.

  • A mutual fund, guaranteed interest certificate (GIC), stocks and bonds, or actual investments such as insurance GICs and segregated funds can also be a tax-free savings account. It does not have to be a bank account.

  • The actual amount you contribute will have to be mentioned for income tax purposes, and it will not be deductible. However, the amount you gain as investment income or capital gain will not be taxed and can also be withdrawn tax-free.

  • You can withdraw money from this savings account at any time if it is allowed according to the terms and conditions of your investment.

  • The amount you withdraw will free up contribution room for next year. This can be considered as an unused contribution space. You can use this room to add more money than the annual maximum in the following year.

  • The income you have earned or the withdrawals you have made will not affect your eligibility for federal income-tested benefits such as Old Age Security.

  • Your TFSA assets can be transferred to your spouse’s TFSA upon your demise. This will not affect their contribution room.

  • You can also add a beneficiary to your TFSA. This will be helpful in avoiding the cost and time involved in probate and estate settlement.

How much can you contribute to a TFSA?

The annual limit for TFSA contributions is $6000. If an individual starts their TFSA plan after the age of 18, they can make contributions for the previous years as well. For example, if A starts their TFSA at the age of 21, they can contribute for the last three years as well. This is possible only if they have been living in Canada since the age of 18, at the very least.

TFSA Contributions and Withdrawals:

What is the total contribution limit per year?

An individual can contribute up to $6000 per year.

What happens if the total amount is not contributed each year?

If you have contributed $4000 this year, you can carry forward the contribution room of $2000 to the next year. This means you can contribute $8000 ($6000 + $2000). There are no limits on the amount of contribution room you can build in a year or on the length of time for contributions.

What will happen if I contribute more than the limit in a year?

If you have contributed more than the yearly limit and do not have contribution room to offset it, you will be charged a penalty of 1% per month on the difference.

How will I know if I have contributed over the limit?

Every year the CRA will send a confirmation regarding the used room and the limit for the following year. You can also access this information on the Canada Revenue Agency website under the “My Account” section.

How much can I put in my TFSA if I have never made a contribution before?

Year Contribution Limit
2019 $6,000
2018 $5,500
2017 $5,500
2016 $5,500
2015 $10,000
2014 $5,500
2013 $5,500
2012 $5,500
2011 $5,500
2010 $5,500
2009 $5,000
Total $63,500

How do you make a withdrawal from your TFSA?

You can make withdrawals from your TFSA at any time, depending on the terms of your investment. There is no limit on how much you can withdraw or for what purpose.

Will you have to pay any income tax on the withdrawals?

The withdrawals from a TFSA are entirely tax-free.

Will the withdrawals affect your taxable income?

Since the withdrawals from a TFSA are tax-free, they do not need to be reported as income.

Can you put withdrawn funds back into your TFSA account?

The amount that has been withdrawn from your TFSA can be contributed back to the account in the same year. This is possible only if there is an available contribution room.

If there is no contribution room available, it is best to wait and put the money into the account in the next year. In the scenario you add it to your account and exceed the contribution limit, the extra amount will be subjected to a penalty of 1% each month that you are over the limit.

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