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 2019 is $6,000.10 Unlike the RRSP, TFSA contributions are not deductible for tax purposes. However, capital and income withdrawals are not taxable.


12 Amount indexed annually since 2010 and rounded to nearest $500 (corresponding to $5,848 in 2019, before rounding). Contribution ceiling was $5,500 for the years 2016 to 2018, $10,000 in 2015, $5,500 in 2013 and 2014 and $5,000 for 2009 to 2012.

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 and TFSA.11

RRSP RESP TFSA
Contributions
Annual maximum

Lesser of:

  • 18% of previous year’s earned income
  • Annual limit ($26,500 in 2019)
No limit
  • $6,000 in 2019
  • $5,500/year for the 2013 and 2014 years and 2016 to 2018
  • $10,000 in 2015
  • $5,000/year from 2009 to 2012
Cumulative limit None $50,000 None
Deductibility Deductible Not deductible Not deductible
Unused contributions room Can be carried forward
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
Withdrawals
Taxation Taxable Partially taxable Non-taxable
Specific conditions None Beneficiary must pursue post-secondary education None
Annual maximum
  • None
  • Withdrawals do not create new contribution room
  • Unlimited for full-time studies12
  • $2,500 per part-time session
  • None
  • Withdrawals create new contribution room next year
Particularities based on savings objectives
Education
  • Withdrawal limits applicable13
  • Withdrawals taxable if not repaid within prescribed times
  • Annual contributions attract grant
  • Limited life of plan
  • Mechanism that responds to ongoing savings needs regardless of objectives
  • No maximum life
Home purchase Not intended for these purposes
Retirement
  • Accumulated savings must be withdrawn or transferred to another vehicle before December 31 of the year of the annuitant’s 71st birthday

11  Parents who want to save for the financial security of a handicapped child can also invest in an RDSP (see Section IV).
12  Limit of $5,000 for first full-time session.
13  Under terms of Lifelong Learning Plan ($20,000, see Section III) and HBP ($25,000, see Section II).
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