Tax Free Savings Account (TFSA)
A savings plan for right now or future years.
Have a question about TFSAs at Scotiabank? We’re here with the answers.
In the 2008 budget, the government of Canada introduced a brand new personal savings vehicle: the Tax-Free Savings Account (TFSA), to help you save for different purposes throughout your lifetime. This new registered account is the most important personal savings vehicle for Canadians since the introduction of the RRSP in 1957.
As of January 2, 2009, you are able to start contributing to a TFSA, which can hold any combination of eligible investment vehicles, such as cash, stocks, bonds, GICs and mutual funds, the growth of which will be tax-sheltered.
Your Scotiabank advisor can explain how a TFSA can help you meet your savings and investment goals – whether it’s short term or for future years.
A TFSA allows you to set money aside in eligible investments and watch those savings grow tax-free throughout your lifetime. Interest, dividends, and capital gains earned in a TFSA are tax-free for life. Your TFSA savings can be withdrawn from your account at any time, for any reason1, and all withdrawals are tax-free. And if you want, you can put back the amount you withdraw into your TFSA. However, you have to do it the following year so it will not impact your contribution room.
The annual TFSA contribution limit for each individual (18 years of age and older) is set at $6,500 for 2023. From 2009 to 2012, the annual maximum contribution limit was $5,000, $5,500 from 2013 to 2014, $10,000 for 2015, $5,500 for 2016 to 2018 and $6,000 for 2019 to 2022. Unused contribution room from one year is carried forward and added to the TFSA contribution limit the following year. Any withdrawals made in a calendar year will create additional contribution room the following year.
You cannot open a TFSA or contribute to one until you turn 18. In certain provinces and territories, the legal age at which an individual can enter into a contract (which would include opening a TFSA) is 19. In such jurisdictions, an 18-year-old who would be otherwise eligible, would accumulate the annual contribution amount for that year and carry it over to the following year.
The TFSA contribution limit is not prorated in the year an individual:
- turns 18 years old;
- dies; or
- becomes a resident or a non-resident of Canada.
The Canada Revenue Agency (CRA) imposes a tax of 1% per month, for each month or partial month that the over contribution remains in the account.
The 1% tax will continue to apply until one of the following:
- The entire over contribution amount is withdrawn; or
- For eligible individuals, the entire over contribution amount is absorbed by additions to their unused TFSA contribution room in the following years.
For more information, please check the CRA website.
There's something for everyone with a TFSA and your Scotia advisor can help you decide how this registered account can help you meet your goals. Here are some ways that you can take advantage of this new savings vehicle:
Are you looking to save for a "rainy day"?
A TFSA is an ideal all-purpose savings account that offers complete flexibility to save for a multitude of uses in one registered account. Your savings build up over time – tax-free - helping you reach your goals sooner, and you can withdraw your money when you need it.
Do you have non-registered investments? Have you maximized your RRSP?
A TFSA is an excellent choice if you have non-registered investments. The TFSA allows you to turn taxable income into tax-free income for life, by creating a more tax-efficient investment portfolio and enabling you to maximize your investment growth. You can contribute to a TFSA for a spouse or other family member. Spousal attribution rules don't apply as they would with an RRSP.
Are you retired or earning a pension income??
A TFSA is also an ideal investment vehicle for depositing surplus RIF or pension income. It provides the ability to permanently tax-shelter non-registered GIC interest income. Deposits to a TFSA will not result in a claw back of government benefits like Old Age Security or the Guaranteed Income Supplement and there is no age threshold at which a TFSA must convert into a taxable account.
Scotiabank TFSA-eligible investments include mutual funds, Guaranteed Investment Certificates (GICs) and cash, all in one registered account. Investment options with ScotiaMcLeod or Scotia iTRADE may differ. Please consult your financial advisor for specific details on investment availability.
Maximum 2022 annual contribution limit is $6,500 regardless of an individual's earned income. A penalty will be assessed by Canada Revenue Agency (CRA) of 1% per month on your over-contributions.
Contribution limit is based on an individual's earned income from the previous year, up to a maximum amount (e.g. in 2023 the limit is $30,780 less your pension adjustment or the amount indicated on your 2022 Notice of Assessment).
Contributions are not tax-deductible and therefore do not reduce taxable income. Income/tax returns earned on investments are tax-free.
Contributions are tax-deductible and therefore reduce taxable income. Income/tax returns earned on investments are tax-sheltered until withdrawn.
Withdrawals are not added to taxable income - they are tax-free. Plus, withdrawals can be "re-contributed" in subsequent years.
Withdrawals are added to taxable income and taxed at the applicable marginal tax rate. Withdrawals cannot be "re-contributed" in subsequent years.
You can withdraw money from your TFSA at any time; however, specific product restrictions may apply (e.g. GIC maturity dates). The amount you withdraw can be put back in your TFSA starting the following year without impacting your contribution room.
Neither income earned in your TFSA, nor withdrawals, will affect your eligibility these types of benefits.
If you designate your spouse or common-law partner as a "successor holder," you may allow them to assume your plan on your death without affecting their own TFSA. Alternatively, you may designate a beneficiary(ies) to receive the funds in your plan upon your death. The beneficiary/successor holder option is available in all provinces and territories, except for Quebec. Note: Residents of Quebec may make designations through a will. Always check with your legal advisor before making tax and estate decisions.
Your TFSA contribution room information can be found by going to one of the following Canada Revenue Agency (CRA) services:
- My Account;
- Quick Access; or
- CRA Tax Information Phone Service (TIPS): 1 800 267 6999
- CRA Individual inquiries: 1 800 959 8281
Note: you may need your social insurance number to access some of these services.
Yes. You will be able to contribute to a spouse's TFSA without affecting your own contribution room. Income attribution rules, which currently govern RRSPs, do not apply.
No. Your spouse owns the TFSA and will earn any investment income and capital gains in the account.
Yes. TFSA assets can be used as security for a loan.
If you become a non-resident, you are able to maintain your TFSA and will not be taxed on any earnings or withdrawals in the account. However, you will not be allowed to contribute additional funds and no contribution room will accrue for the years in which you are a non-resident.
For a TFSA with Scotia Investments
- Sign into Scotia OnLine
- Select the Investing tab
- Then select the Scotia Investments tab
- Select "Contribute to Existing Investment" from the left navigation.
- Select your TFSA and choose the contribution type that you would like to make.
Only individual (Sole) accounts can be set up. Joint, non-personal and 'In Trust For' accounts are not available.
Borrowing to fund a TFSA is permitted; however, interest expenses related to such a loan are not tax-deductible.
A new form, 'Transfer from a Tax-Free Savings Account (TFSA) to another TFSA on Breakdown of Marriage or Common-Law Partnership', is required to be completed and submitted to the Financial Institution prior to the TFSA assets being transferred.
All eligible deposits (e.g. GICs, cash) held within a TFSA are insured by CDIC, and will be afforded coverage to a maximum of $100,000, separate from other deposits held by the same depositor at the same member institution.
If the Dealer of your Scotia TFSA is The Bank of Nova Scotia, funds in the cash section of your account are insured by the Canada Deposit Insurance Corporation.
If the Dealer of your Scotia TFSA is Scotia Securities Inc., funds in the cash section of your account are held in trust by Scotia Securities Inc. These funds are not eligible for deposit insurance offered through the Canada Deposit Insurance Corporation.
For more information, please contact the CDIC, or pick up a CDIC brochure at your nearest Scotiabank branch.