Are you fully taking advantage of the Tax-Free Savings Account (TFSA)? At the start of 2025, all individuals residing in Canada who are 18 years of age or older have been granted an additional $7,000 of contribution room to their TFSA. Unlike the RRSP, contributions made to the TFSA are not deductible from taxable income. However, all income generated by the investments as well as withdrawals made are tax-free, which highlights the advantage and great flexibility of this plan. For a large majority of Canadians, the Tax-Free Savings Account therefore remains a must-have in the tax planning of their investments.
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Here is our TFSA guide for 2025
1. What is the maximum amount?
All individuals residing in Canada who are 18 years of age or older can open and contribute to a TFSA. Since the inception of the plan in 2009, here is a summary of TFSA contribution room over the years:
Year Contribution Room Year Contribution Room
2009 5 000 $ 2017 5 500 $
2010 5 000 $ 2018 5 500 $
2011 5 000 $ 2019 6 000 $
2012 5 000 $ 2020 6 000 $
2013 5 500 $ 2021 6 000 $
2014 5 500 $ 2022 6 000 $
2015 10 000 $ 2023 6 500 $
2016 5 500 $ 2024 7 000 $
2025* 7 000 $
Just like the RRSP, unused contribution room can be carried forward indefinitely. Thus, an individual who was at least 18 years old in 2009 and has always resided in Canada would, if they had never contributed, have a cumulative total of $102,000 in TFSA contribution room as of January 1, 2025,
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2. A TFSA Withdrawal Creates New Room the Following Year
The TFSA is a very flexible plan: you can withdraw amounts at any time, without immediate tax impact. Not only are withdrawals not taxable, but each amount withdrawn generates new contribution room for the following year. For TFSA holders who have already made withdrawals, we recommend that you consult your My Account space on the Canada Revenue Agency (CRA) website or contact the CRA directly to find out your exact contribution room.
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3. Excess Contributions: Be Careful
It is essential not to contribute beyond the allowed limit; otherwise, you will have to pay a special tax corresponding to 1% per month on the excess. The TFSA is automatically subject to this special tax if, during a given month, there is an excess contribution.
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4. TFSA for the spouse
Unlike the RRSP, it is not possible to contribute directly to your spouse’s TFSA. However, nothing prevents you from lending or giving funds to your spouse so that they can maximize their own TFSA. Since only the holder of a TFSA can make contributions to it, the strategy is to transfer the amounts to the spouse, and then let them make their own contribution.
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5. TFSA vs. RRSP
Since the introduction of the TFSA in 2009, many people ask: “Should I prioritize the RRSP or the TFSA?” The answer depends on several factors, and a thorough analysis of your situation is necessary. Here are a few general points:
• From a tax standpoint, if your marginal tax rate in retirement (or at the time of withdrawals) is lower than it is at the time of contribution, the RRSP is often more advantageous. Otherwise, it is better to favour the TFSA.
• In a scenario where the two tax rates (at the time of contribution and at the time of withdrawal) are equivalent, then the TFSA and the RRSP are relatively equivalent from a strictly tax point of view.
• However, reality is more complex. For example, the RRSP contribution can make you eligible for certain government credits or benefits by reducing your family net income.
• If you plan to use your amounts for a short- or medium-term project, the TFSA may be more judicious, since it allows a withdrawal without immediate tax impact and reinstates your contribution room the following year (whereas an RRSP withdrawal causes you to lose that contribution room).
• If your amounts are intended exclusively for retirement, the RRSP remains the preferred choice for many people, especially when the marginal tax rate during working years is higher than what is anticipated in retirement.
If in doubt, do not hesitate to consult a financial advisor. Our specialists in financial planning can help you determine whether it is preferable for you to contribute to the TFSA or the RRSP based on your situation.
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6. Deadline to Contribute to a TFSA
There is no deadline for contributing to a TFSA. However, because the amounts you invest in the TFSA grow tax-free, the earlier you contribute in the year, the more you can maximize your potential returns (assuming your investments generate a positive return, of course).
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7. Borrowing to Contribute
It is possible to borrow to invest in a TFSA (a leverage strategy). However, this approach carries risks, and the interest paid is not deductible. It is often preferable to save and contribute gradually rather than borrowing. Each situation is unique; do not hesitate to consult a professional to determine whether this strategy is right for you.
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8. Holder, Beneficiary, and Estate
Did you know that it is possible to designate a successor holder (usually the spouse or common-law partner) or a designated beneficiary (child, ex-spouse, recognized charity, etc.) on your TFSA account? Here are some important distinctions:
a) Successor holder
• If you die, the entire TFSA can be transferred to the designated successor holder (typically the spouse or common-law partner).
• The account then retains its tax-sheltered status, and the successor holder becomes the owner of the TFSA without having to close it.
• Any growth after death generally remains tax-exempt, provided the designation is valid and formalities are respected.
b) Designated beneficiary
• If you have not named a successor holder, you can designate a beneficiary (for example, your children, an ex-spouse or common-law partner, a recognized charity, etc.).
• The beneficiary will not pay any tax on the total value of the assets up to the date of death. Gains realized after death may be taxable if the TFSA is kept open for too long or if the amount is not transferred properly.
• A beneficiary (other than a spouse) may deposit the amounts received into their own TFSA, provided they have sufficient unused contribution room.
• If the beneficiary is a survivor (spouse or common-law partner) who is not designated as a “successor holder,” they may have the option to designate all or part of the payment received as an “excluded contribution.” Under certain conditions, this does not reduce their own contribution room.
c) No successor or beneficiary
• If no successor holder or beneficiary is designated, the TFSA assets pass into the estate of the deceased holder. They will then be distributed according to the provisions of the will (or, if there is no will, according to provincial succession laws).
d) Excess at the time of death
• If, at the time of death, the TFSA had an excess (excess contribution), a 1% per month tax remains applicable on this excess up to and including the month of death. The legal representative must submit the required forms to the CRA.
In short, it is essential to carefully plan the designation of the successor holder or beneficiary in the TFSA contract (or in the will) to facilitate the tax-free transfer of the amounts and avoid estate complications. If you have any doubts, do not hesitate to consult a professional (notary, tax specialist, or financial advisor).
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9. Eligible Investments
A TFSA is not just a simple savings account: it can hold a variety of investments, similar to those authorized in an RRSP. Among the types of eligible investments are:
• Cash
• Mutual funds
• Financial securities listed on a designated stock exchange (stocks, ETFs, etc.)
• Guaranteed Investment Certificates (GICs)
• Bonds
• Certain shares of small business corporations
This flexibility allows you to adjust your portfolio according to your objectives and your investor profile (risk tolerance, investment horizon, etc.). Nevertheless, be sure to respect the investment rules issued by the Canada Revenue Agency (CRA). In case of doubt, it is recommended to consult a financial advisor or a tax specialist in order to choose assets suited to your situation and needs.
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10. Impact of Non-Residency
If you become a non-resident of Canada, you stop accumulating new TFSA contribution room. You can generally keep your existing TFSA, but you should not contribute further. Any contribution made while you are a non-resident may result in penalties from the CRA.
Residency ties include:
• A home in Canada;
• A spouse or common-law partner or dependants in Canada;
• Personal property in Canada, such as a car or furniture;
• Social ties in Canada.
Check your residency status and consult a tax professional if you plan to leave the country for an extended period.
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Feel free to contact us if you have any questions or to set up a personalized investment strategy. Our experts will be happy to assist you and help you grow your capital within a TFSA or any other investment vehicle suited to your financial goals.
