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What Is a TFSA? How a Tax-Free Savings Account Works (2026)

Updated

A Tax-Free Savings Account (TFSA) is a registered account you can use for cash, investments or both. You get no tax deduction for putting money in, but the interest, dividends and capital gains it earns are generally tax-free, even when you take them out. You can open one if you are 18 or older, resident in Canada for income tax purposes and have a valid SIN. The dollar limit for 2026 is $7,000; your own room also depends on your eligible years, contributions and withdrawals.

How does a TFSA work? The rules at a glance

RuleIn short
Who can open oneTo open a TFSA you must be a resident of Canada for income tax purposes, be 18 or older and have a valid Social Insurance Number; where the age of majority is 19, you open it at 19 and keep the room from the year you turned 18. See who can open a TFSA, and how.
Contribution roomYou get each year’s dollar limit if, at any time that year, you are 18 or older and resident in Canada; room you don’t use carries forward. See contribution room.
ContributionsNot tax deductible. If you’re a resident of Canada with room left, you can contribute at any time in the year. See tax.
What it can holdSavings deposits, GICs and qualified investments such as listed shares, bonds, mutual funds and ETFs. See what a TFSA can hold.
WithdrawalsGenerally any time in the year, depending on what the account holds. See taking money out.
Federal benefits and creditsIncome earned in a TFSA and TFSA withdrawals don't reduce federal benefits such as OAS, GIS and EI, or credits such as the Canada child benefit, the Canada workers benefit and the Canada Groceries and Essentials Benefit (formerly the GST/HST credit).
Going over your roomAn excess amount can make a TFSA taxable. See contribution room and the TFSA penalty calculator.
More than one TFSAOne room limit covers all your TFSAs combined. See more than one TFSA.
Couples and childrenYou can’t pay into your spouse’s TFSA yourself, but you can gift money to your spouse or common-law partner for their own. See couples and family.
How long you can keep itThe Income Tax Act ends a TFSA when its last holder dies or it stops meeting the Act’s conditions; an age is not on its list. You can close it if you no longer want it.

Is a TFSA a savings account or an investment account?

It can be either: some TFSAs are simple savings accounts and others are investment accounts. The CRA lists three main kinds. A deposit TFSA at a bank or a credit union is like a savings account or a guaranteed investment certificate (GIC). An annuity contract comes from an insurance company and pays guaranteed amounts for a set period in return for a lump sum. In a trust arrangement, your investments are held in trust by a financial institution, most often in a mutual fund or trading account. In a self-directed TFSA, you choose and trade the investments yourself: stocks, bonds, mutual funds, ETFs and other qualified investments. The kinds differ in features and risk. Investments in a TFSA can lose value, and a loss doesn’t give you that room back. Best TFSA accounts in Canada compares where to open each type.

Who can open a TFSA, and how do you open one?

You need to meet all of these to open a TFSA:

  • You are a resident of Canada for income tax purposes (citizenship is not required).
  • You are 18 or older.
  • You have a valid Social Insurance Number.
  • Where the legal age to enter a contract is 19, you open the account at 19 and can use the room from the year you turned 18.

You don’t need earned income to open one or to contribute.

Can you open a TFSA on a work permit or as a newcomer?

The conditions don’t include citizenship or a type of permit; they ask whether you are a resident of Canada for income tax purposes. You become resident once you have enough residential ties here, such as a home, a spouse or common-law partner, or dependants; for most newcomers, residency begins on the first day they live in Canada; see am I a Canadian tax resident?

If you’re a new resident aged 18 or older, you can open a TFSA from the day your residency starts. Your room starts building in your first year of residency, not in the year you turned 18. Non-residents who are 18 or older with a valid SIN may keep a TFSA, but they can’t make tax-free contributions to it; non-residents and TFSA room covers the rest.

How do you open a TFSA?

You open one with an issuer: a bank, credit union, insurance company or trust company, each with its own savings and investment choices. The CRA describes the steps this way:

  1. Contact a TFSA issuer. Best TFSA accounts in Canada compares the kinds of account they offer.
  2. Give the issuer your Social Insurance Number, your date of birth and other supporting documents it requests.
  3. The issuer may then register it with the federal government as a TFSA.

A successor holder (a spouse or common-law partner) or a beneficiary can be named in the TFSA contract or in your will, though Quebec does not recognize these designations except for annuity contracts; see what happens to a TFSA when you die.

You can contribute investments instead of cash (in kind), as long as they are qualified investments; see moving investments in kind. To close a TFSA you no longer want, contact the issuer, take out what’s left in it and ask them to close the account.

Contribution room: how the TFSA limit works

How much TFSA room you have has the limits by year and the steps to work out your own room; this is the short version. The TFSA dollar limit for 2026 is $7,000.

The annual TFSA dollar limit is the same for everyone eligible, but your room is specific to you: the annual limit is added from the year you turn 18 as a Canadian resident (2009 at the earliest), unused room carries forward, withdrawals are added back the following year, and no room is added for a year you were a non-resident the whole year; changes in the value of your investments don't affect it.

Your available room is this year’s dollar limit, plus unused room from previous years, plus withdrawals made the previous year, minus contributions already made this year. If you have been 18 or older and resident in Canada in each year since 2009 and have made no contributions, your room in 2026 is $109,000, the never-contributed total. The TFSA figures in your CRA account are updated once a year, in the spring, after issuers report the previous year’s transactions, so they don’t include what you’ve put in this year.

An over-contribution is taxed at 1% of the highest excess amount in each month, for every month the excess stays in the account, with no buffer. The TFSA penalty calculator works out the cost and the fix, and the TFSA contribution room calculator adds up your own room.

Can you take money out whenever you want?

Generally yes, any time in the year, depending on the kind of investments you hold. If your money is locked into an investment for a set term, the issuer may charge you a penalty or fee to close the account; GICs in a TFSA covers term GICs.

A withdrawal is added back to your TFSA contribution room on January 1 of the following year, not right away, so putting it back sooner uses other unused room. TFSA withdrawal rules has the details, including how withdrawals affect federal benefits.

Do you pay tax on a TFSA, and do you report it?

Usually not: you don’t normally pay tax on what a TFSA earns. Income, gains and losses inside a TFSA, and the money you withdraw, are generally left out of your income for tax purposes. Your issuer tells the CRA about your withdrawals by the end of the following February.

Outside a TFSA, investment income such as interest counts toward your total income, and you report it on your return.

Say a balance of $10,000 earns 4% interest in a year, which is $400. Earned outside a TFSA by someone with a marginal tax rate of 30%, that interest would add $120 to their tax; earned inside a TFSA, with none of the situations below, it adds nothing.

After a holder dies, a beneficiary is taxed on any amount paid above the account’s value on the date of death. From a trust TFSA, that amount is reported in box 134 of a T4A slip; from a deposit or annuity TFSA, the usual slips apply, such as a T5 for interest.

Tax may apply in these situations:

When your TFSA has taxable amounts, you file a TFSA Return (Form RC243), due by June 30 of the calendar year following the year the tax applies.

How is a TFSA different from an RRSP or FHSA?

  • RRSP: deductible RRSP contributions can reduce your tax, and you generally pay tax when you receive payments from the plan, while a TFSA contribution is not deductible and its withdrawals are generally tax-free. In the year you turn 71 you have to withdraw your RRSPs, transfer them to a RRIF or use them to buy an annuity. TFSA or RRSP first works through the choice, and the RRSP vs TFSA calculator runs the numbers.
  • FHSA: a registered plan for first-time home buyers, who can save tax-free (up to certain limits) to buy or build a qualifying first home; contributions are generally deductible. FHSA vs TFSA vs RRSP compares the three.
  • An ordinary investment account: TFSA vs a non-registered account compares the two.

What can a TFSA hold, and what can’t it?

The CRA’s list of common qualified investments includes cash, GICs and other deposits, government and corporate bonds, mutual funds, insured mortgages, and most shares and ETF units that trade on a “designated stock exchange”. TFSA investment options covers the full list, what a TFSA can’t hold and the tax on non-qualified or prohibited investments, and how savings, GICs, funds and stocks differ. US stocks in a TFSA covers US dividends and US dollars.

Can you day trade in a TFSA?

You can buy and sell in a self-directed TFSA, but the CRA says holders who invest “with the frequency and experience of a professional trader” may lose the account’s registration and have their earnings taxed as business income. Day trading in a TFSA covers the tax on business income, and day trading in Canada covers how the CRA looks at whether trading is a business.

Can you have more than one TFSA?

Yes, you can have several, but they all share one contribution limit. What you contribute to each of them counts against that one amount, so a second account doesn’t add room. In the CRA’s example, Isla tracks what she puts into each TFSA and keeps the total within her room; contribution room explains why the CRA’s figure doesn’t show this year’s deposits.

Say your room this year is $6,000. You contribute $4,000 to a TFSA at one issuer and later $3,000 to a second TFSA at another: together that is $7,000, an excess of $1,000.

To move money between your own TFSAs: A direct transfer between your own TFSAs, arranged by the institutions, has no effect on your room; withdrawing the money yourself and depositing it elsewhere is a new contribution that uses room, and the withdrawal is added back only on January 1 of the following year. To avoid tax consequences, the CRA says to do a direct transfer through the receiving financial institution; how to transfer a TFSA covers moving or combining accounts.

Couples and family

Can you contribute to your spouse’s TFSA?

Not directly: a TFSA has to prohibit anyone other than the holder from making contributions to it. You can, though, gift money to your spouse or common-law partner to put into their own TFSA, up to their own room. The CRA says the gift “or any income earned from this amount will not be allocated back to you”.

Outside a TFSA, the general family rule is this: If you give or lend money or other property to your spouse or common-law partner, the income it earns is taxed to you, and so are capital gains when they sell it, while you are resident in Canada and still together; if you give or lend it to a child, grandchild, niece or nephew under 18, the income (but not capital gains) is taxed to you until the year they turn 18. The main exceptions are a loan at the CRA's prescribed rate with each year's interest paid within 30 days after the year ends, a transfer for fair market value, and living apart after the relationship breaks down. The Income Tax Act sets that rule aside for gifts to a spouse or common-law partner for their TFSA:

  • The Income Tax Act's attribution rules (ss. 74.1, 74.2 and 74.3) do not apply to a transfer of property that meets the conditions below.
  • The property goes to your spouse or common-law partner, and the exception applies while it (or property substituted for it) is held under a TFSA of which they are the holder.
  • The exception applies only to the extent your spouse or common-law partner does not have an excess TFSA amount.

See also spousal RRSPs, attribution rules in Canada and, if your spouse dies, what happens to a TFSA when you die.

Can a TFSA be joint?

No. Each TFSA belongs to one person: the law describes it as an arrangement between an issuer and an individual, kept for the holder’s exclusive benefit. Each spouse or common-law partner can have their own TFSA, and one named as successor holder becomes the new TFSA holder at death.

Can you open a TFSA for your child?

No. You must be 18 or older to open a TFSA, and 19 in the provinces and territories where that is the minimum age to sign a contract such as a TFSA. Room starts in the year you turn 18 if you are resident in Canada, and where the contract age is 19, that year’s room carries over once you can open one. To save for a child before then, one option is an RESP, a contract in which you, as subscriber, name the child as a beneficiary and agree to contribute for them; see the RESP hub and in-trust accounts.

Where to go next

Sources

The figures and rules on this page come from these sources, last checked against them between August 29, 2026 and October 1, 2026. How we check facts.