🟡 Intermediate · Step 14 of 22 · Topic: Investing & Tax-Free Accounts

In one sentence

A TFSA lets your savings and investments grow without tax. This post explains how much you can put in, when your room starts, and the rules that help you avoid penalties.

Words to know

• TFSA (tax-free savings account): a special account where the money you earn is generally tax-free, even when you take it out.
• Contribution: money you put into the account.
• Contribution room: the most you are allowed to put in. The CRA (Canada Revenue Agency) tracks it.
• Withdrawal: money you take out.
• Resident for tax purposes: someone the CRA treats as living in Canada. Most newcomers become residents when they settle here.

Step 1: Know what a TFSA really is

The name says “savings account”, but a TFSA can hold more than cash. The CRA says it can hold savings and investments, such as GICs, bonds, mutual funds, ETFs and stocks.

Interest, dividends and gains inside a TFSA are generally tax-free. You don’t pay tax when you take money out. You don’t need a job or income to have one.

Step 2: Check that you can open one

The CRA says you need to be:

• At least 18 years old
• A resident of Canada for income tax purposes
• Holding a valid SIN (social insurance number)

In some provinces and territories, you must be 19 to sign a contract. There, you can open a TFSA at 19, and you keep the room from the year you turned 18.

Step 3: Work out your contribution room

Your room starts in the year you are both 18 or older and a resident of Canada. For newcomers, the CRA says room starts in your year of residency, not the year you turned 18. You get no room for years before you lived here.

Each year you get the full yearly limit, even if you arrived late in the year. Unused room carries forward to future years. Checked October 2026:

Year	TFSA yearly limit
2023	$6,500
2024	$7,000
2025	$7,000
2026	$7,000

Your room this year = this year’s limit + unused room from past years + what you took out last year.

Step 4: Understand withdrawals

You can take money out at any time. But the room comes back only on January 1 of the next year. If you take money out and put it back in the same year, you may go over your limit.

Step 5: Avoid over-contributing

If you put in more than your room, the CRA charges a tax of 1% per month on the extra amount, for as long as it stays in the account.

You can see your room in CRA My Account. Go to Savings and pension plans, then View TFSA details. But the CRA updates it only once a year, in the spring, after banks report. It may not show this year’s deposits or withdrawals. So keep your own records too, and add up every TFSA you have.

Step 6: Know the rules if you leave Canada

• You can keep your TFSA. Canada does not tax the income, but your new country might.
• You get no new room for a full year you are a non-resident.
• If you put money in while you are a non-resident, you pay 1% tax per month on it until you take it out.
• You can take money out. That room comes back only if you become a resident again.

Example

You arrive in Canada in June 2024, age 30. You become a resident and get your SIN that year.

• 2024 room: $7,000 (the full limit, even though you arrived in June)
• 2025 room added: $7,000. Total room so far: $7,000 + $7,000 = $14,000
• In 2025, you put in $10,000. In December 2025, you take out $2,000.

Your room on January 1, 2026:

• Unused room: $14,000 − $10,000 = $4,000
• Plus your 2025 withdrawal: $2,000
• Plus the 2026 limit: $7,000
• Total: $4,000 + $2,000 + $7,000 = $13,000

If you put $14,000 into your TFSA in 2026, you go over by $14,000 − $13,000 = $1,000. The tax is $1,000 × 1% = $10 for each month it stays in. You can stop it by taking out the extra $1,000.

Common mistakes

• Thinking you have room for years before you came to Canada.
• Taking money out and putting it back in the same year.
• Trusting only the room shown in CRA My Account, which may be out of date.
• Keeping a TFSA only as a low-interest savings account without knowing it can hold investments.

✅ My checklist

☐ I know the year my TFSA room started
☐ I worked out my room for 2026
☐ I keep my own record of every TFSA deposit and withdrawal
☐ I wait until January 1 to put back money I took out
☐ I know what happens to my TFSA if I leave Canada

Next step → Step 15: Saving vs investing: risk, time and your goals

More in this topic → Investing & Tax-Free Accounts

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There are no affiliate or referral links in this post. This is general information, not financial, tax or legal advice; everyone’s situation is different. Figures were checked in October 2026 and can change.

Sources: CRA: Tax-free savings account · CRA: What is a TFSA · CRA: Opening a TFSA · CRA: Calculate your TFSA contribution room · CRA: If you over-contribute to a TFSA · CRA: If you become a non-resident