Tax Free Savings Account (TFSA) is an investment account launched by the Canadian government in 2009 to encourage people to invest in savings and avoid tax growth.

However, you cannot contribute unlimited amounts to tax-free accounts, and the government announces a contribution limit every year. The 2021 contribution limit is $6,000. The types of investments that are allowed in a TFSA account are the same as those allowed in an RRSP account. These investments include cash, mutual funds, stocks on designated stock exchanges, GICs, and more.


The money deposited in the TFSA cannot be used to deduct the personal taxable income of the year, but the investment income generated after the deposit in the TFSA, including capital gains, is not subject to tax, even if it is withdrawn.

If you contribute less than your current year's contribution limit, such as $6,000 in 2021, you can carry over the unused amount to the next year. For example, if you contribute only $4,500 in a TFSA in 2021, you can contribute up to $6,000 plus the unused $1,500 for a total of $7,500 in the coming year.

But be careful: don't over contribute. If the contribution amount exceeds the contribution limit, you may be subject to a penalty tax of 1% per month based on the maximum overage in the TFSA for the month. If you don't know your contribution limit for the year, you can ask the CRA.