Tax Planning guide Sections Tax-Free Savings Account

Section 7 – Investments

Tax-Free Savings Account

Individuals who are 18 years of age or older may contribute annually to a TFSA and income earned on such amounts is sheltered from income tax. The maximum amount that can be invested in 2023 is $6,500¹¹ Unlike the RRSP, TFSA contributions are not deductible for tax purposes. However, capital and income withdrawals are not taxable.

¹²Amount indexed annually since 2010 and rounded to nearest $500 (corresponding to $6,163in 2022, before rounding). The annual contribution ceiling has been $6,000 since 2019, and was $5,500 for the years 2013, 2014 and from 2016 to 2018, $10,000 in 2015, and $5,000 for 2009 to 2012 (cumulative total of $81,500 in 2022).

Consider making a donation to your child or adult grand-child to invest in a TFSA so that the amounts invested can earn income tax-free

The following table compares the main features of the most common registered plans, i.e., RRSP, RESP, FHSA and TFSA¹².

	RRSP	RESP	TFSA	FHSA
Contributions
Annual maximum	Lesser of: 18% of previous year’s earned income Annual limit ($30,780 in 2023)	No limit (but grant limited to the first $2,500 of contributions paid each year)	$6,500 in 2023 (cumulative total of $88,000 in 2023)	$8,000/year (not indexed)
Cumulative limit	None	$50,000	None	$40,000
Grant	No	Yes	No	No
Deductibility	Deductible	Not deductible	Not deductible	Deductible
Unused contributions room	Can be carried forward	Can be carried forward (grants limited when carried forward)	Can be carried forward	Unused ceiling can be carried forward up to a maximum of $8,000
Excess contributions	$2,000 permitted Penalty of 1% per month in excess of that amount	Penalty of 1% per month	Penalty of 1% per month	Penalty of 1% per month
Withdrawals
Taxation	Taxable (except for HBP and LLP repaid on time)	Partially taxable	Non-taxable	Non taxable if eligible withdrawal
Specific conditions	None (except for HBP and LLP)	Beneficiary must pursue post-secondary education	None	Withdrawals must be used to purchase a first eligible home
Ceiling	None (except for HBP and LLP) Withdrawals do not create new contribution room	Withdrawal limit for first study session: $8,000 if full-time $2,500 if part-time	None Withdrawals create new contribution room in following year	None Withdrawals do not create new contribution room
Duration and Age Restriction
Minimum age of beneficiary	No minimum age (18 years to be entitled to the $2,000 excess contribution)	No minimum age	18 years	18 years
End of plan	The year in which the policyholder reaches the age of 71	35 years after opening (40 years for a disabled person)¹³	No maximum age or deadline for withdrawals	At the end of the first of the following years:
				The year of the FHSA’s 15th anniversary The year in which the individual turns 71 The year following the first eligible withdrawal

¹² Parents who want to save for the financial security of a handicapped child can also invest in an RDSP (see Section IV).
¹³ 	No contributions after the 31st anniversary of opening the RESP (35th anniversary for a disabled person). Beneficiaries are entitled to a grant for contributions made on their behalf until the end of the calendar year in which they reach the age of 17 (before the age of 21 for bounds).

This document is up to date as of August 31, 2023 and reflects the status of legislation, including proposed amendments at this date.