What Is a TFSA?
A TFSA (Tax-Free Savings Account) is a Canadian account in which investments grow and are withdrawn tax-free. Contributions aren’t tax-deductible. The limit for 2026 is $7,000, and unused room carries forward: someone who has been 18 or older and resident in Canada since 2009 has $109,000 of room in total.
How contribution room works
Room builds up every year from the year you turn 18 (and have a social insurance number), whether or not you open an account. Unused room carries forward indefinitely, so you can catch up later.
Withdrawals come back as new room on January 1 of the next year, not straight away. Putting money back in the same year can overcontribute, which costs 1% of the excess a month until it is removed.
What you can hold
A TFSA is a wrapper, not an investment: it can hold cash, GICs, bonds, stocks and ETFs listed on designated exchanges (the TSX and the major US exchanges among them). Gains, interest and dividends inside are never taxed in Canada.
US dividends are the exception: the US withholds 15% on dividends paid into a TFSA, and it can’t be recovered. That is why many investors hold US dividend payers in an RRSP instead, where the tax treaty waives the withholding.
TFSA or RRSP?
An RRSP gives a deduction now and taxes withdrawals later; a TFSA gives no deduction but never taxes withdrawals. If your tax rate in retirement will be lower than today’s, the RRSP usually comes out ahead; if it will be about the same or higher, or you may need the money before retirement, the TFSA is more flexible.
Withdrawals from a TFSA don’t count as income, so they don’t reduce income-tested benefits such as the Old Age Security pension or the Guaranteed Income Supplement.
Put it to use
Canadian ETFs →Canadian dividend stocks →The Canadian market today →General information, not investment advice.