What is a TFSA?

What is a TFSA?

The Tax-Free Savings Account (TFSA) is a registered savings account introduced by the Government of Canada as an easy way for Canadians to save money without impacting their taxes. You can use your TFSA for any savings goal, and you’re free to make withdrawals at any time during the year, tax-free.

Contributions you make to your TFSA are not deductible for income tax purposes. The amounts you contribute, in addition to any interest earned, is generally tax-free, even if the funds are withdrawn.

Example:

With most savings and investment accounts, you’ll need to pay tax on the interest you earn. For instance, if you earn $300 interest on your savings in a non-registered account, you will need to pay taxes on that $300.

Each year, your financial institution will send you a T5 slip, except in Quebec where it is referred to as an RL3 (otherwise known as a return of investment income slip) detailing the investment income you earned on your savings. (Yep, the government considers interest you earn income!) You’ll need to submit this along with any other tax documents you collect when you file your taxes.

If, however, you’d saved that same amount in a TFSA, your earnings would remain completely tax-free, which makes tax-free savings accounts a great way to keep more of your savings. You will not receive a T5 or RL3 slip for your TFSA, as contributions aren’t tax-deductible, and withdrawals are tax-free.

Who can open a TFSA?

In order to open a TFSA, you must be a Canadian resident with a valid Social Insurance Number (SIN) and be at least 18 years of age.^* When you turn 18, you will be able to contribute up to the full contribution limit for that year.

Example:

• If you were 18 years of age or older in 2009, when TFSAs were introduced, your contribution room would grow each year, whether you opened a TFSA or not.
• If you turned 18 after 2009, your TFSA contribution room would start in the year you turned 18, and your contribution room would grow each following year.

Opening an EQ Bank TFSA Savings Account couldn’t be easier, and you can start saving in minutes.

How much can you contribute to a TFSA?

In general, TFSA contribution room is made up of the total of the following:

• Your TFSA dollar limit
• Any unused TFSA contribution room from previous years
• Any withdrawals made from the TFSA in the previous year

The annual TFSA contribution limit is announced by the Government of Canada each year. As of 2023, for example, the TFSA cumulative limit (if you’ve never contributed, and were eligible for one since inception) is $88,000.

Click here for a cheat sheet of each year’s TFSA contribution limit.

You can find your exact contribution room by logging into your CRA account or calling the Tax Information Phone Service (TIPS) at 1-800-267-6999.

If you don’t contribute to a TFSA, can you use your unused contribution room in the future?

If you withdraw from your TFSA, or choose not to contribute, you won’t lose your contribution room. You can recontribute amounts you’ve withdrawn on or after January 1 of the following year or years, and your contribution room carries forward indefinitely.

What happens if you overcontribute to a TFSA?

If you exceed your TFSA contribution limit for the year, the Canada Revenue Agency will charge a tax on the excess at 1% per month. The tax is calculated based on the highest excess amount for the month.

Remember, you are responsible for tracking your contribution amounts each year. Keep your eye on your TFSAs across all financial institutions, so you don’t accidentally over-contribute.

Do you have to pay tax when you withdraw from your TFSA?

Withdrawals from your TFSA are completely tax-free, and your contribution limits reset every January 1.

How to open an EQ Bank TFSA

If you’re not yet an EQ Bank customer, you’ll need to open a Savings Plus Account first by visiting www.eqbank.ca and applying online.

Once you’ve successfully opened your Savings Plus Account, follow the steps below to open your EQ Bank TFSA.

On the web browser:

• Sign in and click “Products”
• Select “Open a TFSA Plan”
• Review details and submit your application

Using the mobile app:

• Sign in and tap the hamburger menu at the top right of your screen
• Select “Open a new account/plan”
• Tap “Open a TFSA Plan”
• Review details and submit your application

That’s it! Now you’re well on your way to saving money tax-free. Want more info? You can learn more about EQ Bank TFSAs here.

^* Any EQ Bank customer who has reached the age of majority in their province of residence, and who has a valid Social Insurance Number (SIN) can open an EQ Bank TFSA. Exceptions: Non-Canadian residents, and Customers with temporary SINs.