Understanding the Tax-Free Savings Account (TFSA) in 2025

The Tax-Free Savings Account (TFSA) program was introduced by the Canadian government in the 2008 Federal Budget.

It provides an opportunity for any resident of Canada (including foreign students, Workers, and Permanent Residents) over the age of 18 to save and invest tax-free.

The TFSA is a registered account like the Registered Retirement Savings Plan (RRSP).

Unlike the RRSP, contributions to the TFSA are not deductible for income tax purposes; however, any capital gains, dividends, or interests generated on your TFSA investment are tax-sheltered for life.

TFSA Rules and Amounts

These are the rules to keep in mind when contributing to a TFSA.

• You must be 18 years of age or older, be a resident of Canada and have a valid social insurance number.
• You can invest in almost anything through your TFSA, including Guaranteed Investment Certificates (GICs), bonds, mutual funds, stocks, etc. Dividend income from a foreign country may be subject to foreign withholding tax.
• You can withdraw money from your account at any time, for any reason, tax-free.
• You can re-contribute any amount you withdraw the following year, plus your contribution room for that year. Say you withdraw $5,000 from your TFSA in 2024 to pay for an emergency. In 2025, you can contribute that $5,000 plus your regular $7,000 contribution room for 2025.
• Do not contribute over your limit. Excess contributions to your TFSA are subject to a 1% tax on the excess contributions each month until you remove them. If you have been a resident of Canada since 2009, this means you have a total contribution room of $102,000 (updated for 2025). If in doubt about your TFSA limit, you can contact Canada Revenue Agency (via My Account) or use the Tax Information Phone Service.
• The TFSA does not affect your eligibility for other Federal government benefits or credits based on your income earning level. It will not affect your assessment for Old Age Security (OAS), Canada Child Benefits (CCB), Working Income Tax Benefit (WITB), Goods and Services Tax or Harmonized Sales Tax credit (GST/HST).
• You can give money to a spouse or partner to put in their TFSA account without violating Canada Revenue Agency’s attribution rule.
• You can open more than one TFSA account and transfer funds from one account to the other. However, the transfer must be a direct transfer between the account issuers. You should not transfer the funds yourself.
• Capital gains or investment income generated on a TFSA are not taxed. However, you cannot claim a capital loss for any losses incurred in your account.

TFSA Limit for 2024

The annual TFSA contribution room is indexed to inflation.

The annual contribution limit for 2017 was $5,500. Due to persistently low inflation rates over the last few years and how annual TFSA limits are rounded off to the nearest $500, the contribution limit remained at $5,500 in 2018.

However, in 2019, it increased to $6,000, and the amount stayed the same for 2020, 2021, and 2022.

Due to high inflation rates in 2022 and 2023, the TFSA annual limit increased to $6,500 in 2023 and $7,000 in 2024, respectively. It remained at $7,000 in 2025.

You can carry forward unused TFSA contribution room indefinitely. The contribution limits over the years have been:

Year	Contribution Room
2009	$5,000
2010	$5,000
2011	$5,000
2012	$5,000
2013	$5,500
2014	$5,500
2015	$10,000
2016	$5,500
2017	$5,500
2018	$5,500
2019	$6,000
2020	$6,000
2021	$6,000
2022	$6,000
2023	$6,500
2024	$7,000
2025	$7,000
Total	$102,000

Related: How To Open A CRA My Account

Investment Ideas for Your TFSA

The TFSA is a great way to put compound interest to work and grow your investments while keeping the tax man away from your profits.

A couple of savings/investment options for your TFSA include:

1. High-interest savings account

You can keep your TFSA funds in a high-interest savings account. The best rates are often offered by online banks, such as EQ Bank, Motive Financial, and Neo Financial.

When investing for the longer term, a high-interest savings account may not cut it for you. This is because the overall rate of return is still much lower than what is available when you invest in the stock market.

However, for short-term investments, such as when saving for a house down payment or setting up an emergency fund, these savings accounts come in handy.

2. Robo-Advisors

Robo-advisors simplify the investment process while lowering your investment costs and maximizing your returns. There are many robo-advisors in Canada, but my #1 choice is Justwealth.

You can read about and compare all the major Robo-Advisors in Canada.

3. Exchange-Traded Funds

Exchange-traded funds (ETFs) are similar to mutual funds, except that ETFs are traded on exchanges like stocks and offer much lower management fees. Also, ETFs offer a wide selection, and you may need to pay trading commissions when you buy or sell.

ETFs are a great investing tool, and these days, building an ETF portfolio on your own is a lot easier using all-in-one ETFs, such as:

• Vanguard Balanced ETF
• Vanguard Growth ETF
• Vanguard All-Equity ETF

Want to buy and sell your own stocks and ETFs directly? Check out Questrade for low-cost trading.

4. Mutual/Index funds

There are several mutual fund offerings by the big banks and others. You can open a TFSA and buy mutual funds or index funds.

I used TD’s e-Series Funds for one of my TFSA accounts. Compared to the average actively-managed mutual fund, the Management Expense Ratios (MER) for e-Series funds are lower, and there are no set-up or commission fees.

You can find some other index fund options.

Related Posts:

• TFSA Over-Contribution Penalty
• Transferring Your TFSA, RRSP, RESP, and RRIF Between Banks 
• Best TFSA Investments
• How To Get Your Free Credit Score
• Designating A TFSA Beneficiary