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Resources · registered accounts

Tax-Free Savings Account (TFSA)

A flexible registered account where investment growth and withdrawals are tax-free. Contributions aren’t deductible, but nothing inside it is taxed again once it’s in.

What it is

A Tax-Free Savings Account (TFSA) is a registered account available to Canadian residents 18 or older with a valid Social Insurance Number. Despite the name, it isn’t a single savings product. It’s a tax-advantaged wrapper that can hold cash, GICs, stocks, bonds, mutual funds, and other qualified investments. Contributions are made with after-tax income and are not tax-deductible, but investment growth inside the account, and withdrawals from it, are not taxed.

Eligibility, contributions & withdrawals

The annual TFSA contribution limit for 2026 is $7,000, matching the limit for the previous several years. Unused room carries forward indefinitely, and if you’ve been a Canadian resident and 18 or older since the program began in 2009 and have never contributed, your cumulative room going into 2026 is $109,000. Amounts withdrawn are added back to your contribution room, but only starting the following calendar year. Withdrawing and recontributing in the same year can trigger an over-contribution if you don’t have room available. Contributing beyond your available room results in a penalty tax of 1% per month on the excess amount.

Figures current as of October 2026. Confirm your personal contribution room in CRA My Account before contributing.

Tax treatment

Contributions are not tax-deductible. Investment growth inside a TFSA, interest, dividends, and capital gains, is never taxed, and withdrawals are completely tax-free and don’t count as income, meaning they don’t affect income-tested benefits like the GST/HST credit, Old Age Security, or the Canada Child Benefit.

Benefits, risks, and common misunderstandings

Benefit

Withdrawals are tax-free and don’t affect income-tested government benefits.

Risk or restriction

Contributions aren’t deductible, so a TFSA doesn’t reduce your taxable income the way an RRSP contribution can.

Benefit

Contribution room carries forward indefinitely if unused, and withdrawn amounts are eventually restored.

Risk or restriction

Restored room isn’t available until the following calendar year. Re-contributing the same amount in the year you withdrew it can cause an over-contribution penalty.

Benefit

No mandatory withdrawals or age limit for keeping the account open.

Risk or restriction

Holding foreign securities, particularly U.S. dividend-paying stocks, inside a TFSA can trigger foreign withholding tax that isn’t recoverable the way it can be in some other account types.

Benefit

A common misconception corrected: a TFSA isn’t restricted to cash deposits.

Risk or restriction

It can hold most of the same qualified investments as an RRSP. The “savings” in the name refers to the tax treatment, not a restriction to cash.

TFSA vs. RRSP

TFSARRSP
Contributions deductible?NoYes. Reduces taxable income
Growth taxed?No, tax-freeTax-deferred, taxed on withdrawal
Withdrawals taxed?NoYes, as income
2026 annual limit$7,000$33,810, or 18% of prior year’s earned income, to that maximum
Best suited forShorter-term goals, tax-free flexibilityReducing current-year taxable income; income expected to be lower in retirement

See the full RRSP page for how it works in detail.

For business owners

For an incorporated business owner, a personal TFSA is separate from the corporation’s own retained earnings and investment planning (see Retained Earnings & Investment Planning). Some owners use a TFSA as part of how they personally draw value out of the business over time, for example, directing part of a salary or dividend into a TFSA, but the account itself doesn’t interact directly with corporate assets or corporate tax rules.

Frequently asked questions

Can I lose the tax-free status by day trading in my TFSA?
The CRA has reassessed some TFSA holders whose trading activity was frequent and extensive enough to be considered a business, which can result in the gains being taxed as business income rather than tax-free. This is a genuine risk for very active traders. Casual buy-and-hold investing is not typically affected, but frequent trading is worth discussing with a tax professional.
What happens if I over-contribute?
The CRA charges a penalty tax of 1% per month on the excess amount for as long as it remains in the account. Check your available room in CRA My Account before contributing, especially after a withdrawal.
Can non-residents contribute to a TFSA?
Generally no. Contributions made while a non-resident of Canada are subject to a 1% monthly tax for as long as they remain in the account, even though the account itself can stay open.
Is a TFSA the same everywhere in Canada?
The federal contribution limit and tax rules are the same across provinces and territories; provincial tax treatment of registered accounts generally follows the same federal framework.
How does this compare to an RRSP?
The core tradeoff: a TFSA gives no deduction but tax-free withdrawals; an RRSP gives a deduction now but taxes withdrawals later. See the comparison table above, or the full RRSP page.

Keep learning

Thinking about how a TFSA fits alongside your business’s own retained earnings or wealth planning? Book a strategy consultation →