A tax-free savings account (TFSA) is an account, available to individuals ages 18 and older in Canada, in which contributions, interest earned, dividends, and capital gains are not taxed, and can be withdrawn tax-free.
Your TFSA contribution room is the maximum amount that you can contribute to your TFSA. Only contributions made under a valid SIN are accepted as TFSA contributions.
Annual TFSA dollar limit:
2009 to 2012................... $ 5,000
2013 to 2014................... $ 5,500
2015.................................. $10,000
2016 to 2018................... $ 5,500
2019 to 2022................... $ 6,000
2023.................................. $ 6,500
2024.................................. $ 7,000
2025.................................. $ 7,000
The TFSA contribution room is the total amount of all of the following:
- the TFSA dollar limit of the current year
- any unused TFSA contribution room from previous years
- any withdrawals made from the TFSA in the previous year
How to withdraw from TFSA?
Depending on the type of investment held in your TFSA, you can generally withdraw any amount from the TFSA at any time.
Withdrawals, excluding qualifying transfers and specified distributions, made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year.
If you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. If you re-contribute but do not have contribution room, you will have over-contributed to your TFSA in the year. You will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.
A Qualifying transfer is a direct transfer between a holder's TFSAs, or a direct transfer between a holder's TFSA and the TFSA of their current or former spouse or common-law partner if the transfer relates to payments under a decree, order, or judgment of a court, or under a written agreement relating to a division of property in settlement of rights arising from the breakdown of their relationship and they are living separate and apart at the time of the transfer.
Can I use TFSA to Buy and Sell stocks?
YES you can, but If you are buying and selling stocks using a TFSA you should not participate in day trading or overly frequent trading. If you do so, the government may consider your trading activity to be a business and will make you pay income tax on your trading activity. The CRA can audit taxpayers who actively trade using a TFSA.
When determining whether a TFSA should be subject to tax, the CRA would examine several factors during their audit. These factors includes the duration of the holdings, the frequency of your trades, the quantity of securities traded, the time spent on trading, and your intention to hold investments and resell them for a profit.
If the CRA determines that your trades are an active business, you may be subject to higher tax rates for business income and not benefit from certain measures of capital gains and losses. Further guidance about transactions in securities can be found in CRA’s interpretation bulletin IT-479R.
Contact us to Learn more about how you can contribute to your TFSA and maximize your Savings.
