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The best TFSAs in Canada for 2022

What exactly is a tax-free savings account?

A TFSA is an investment account that’s sponsored by the government. If you’re a Canadian over the age of 18, you’re eligible to save or invest in a TFSA up to a certain amount annually ($6,000 for 2021), and unused contribution room can be rolled over into future years. A TFSA is a tax shelter; it gives every Canadian of the age of majority some savings or investment room to earn, tax-free.

Some confusion arises from the fact that, despite the name, not every TFSA is a traditional savings account. While you can put cash money into a high-interest savings account or other savings vehicle within a TFSA, it can also hold investments like stocks or bonds, mutual funds, GICs or ETFs. In this way, a TFSA is similar to a registered retirement savings plan (RRSP), with the exception that with the TFSA you do not pay tax on the earnings after you make a withdrawal. On the other hand, where you can claim RRSP contributions as deductible on your income tax return, that perk isn’t applicable to TFSA contributions.

TFSAs are incredibly flexible. So, you can use them to save for retirement (handy if you’ve used all your available RRSP contribution room), but also for a car, a wedding, a vacation or something else entirely. Purchase the TFSA product of your choice when you register for the account, and let it earn and grow. When you’ve accumulated the amount you want, you’re free to withdraw it, without penalty and without paying tax.

Let’s break this down: If you invested $1,000 in a TFSA and that money grew to $5,000, you would have earned $4,000 tax-free. After you make any withdrawal, you regain that exact amount of contribution room inside your TFSA, up to your lifetime limit.

For retirees, or others whose benefits may be clawed back if their income exceeds a certain level, there’s an additional bonus: Money withdrawn from a TFSA does not count as income, so it will not negatively affect Canada Pension Plan payments or other income-tied benefits.

It’s one of the most beneficial and flexible financial products available, and without cost as long as you stay within your contribution limits (over-payments will incur a 1% per month charge on the excess).

What is the TFSA limit?

The TFSA contribution limit is the maximum amount you are able to contribute to your TFSAs without penalty. (If you contribute more, you will be taxed equal to 1% monthly of the highest excess TFSA amount in the month, until you take it out of the account.) However, note that your investments can grow within the account without penalty. The TFSA contribution limit for 2022 is $6,000, and if you have never before deposited money into a TFSA, your lifetime contribution limit is $81,500. If you have previously contributed, you can calculate your remaining contribution room by subtracting from this limit. Any income earned on the account is not counted toward the limit.

When did the TFSA program start in Canada?

The TFSA was introduced by Canadian Minister of Finance Jim Flaherty in 2008, as part of the 2009 federal budget. The program went into effect on January 1, 2009, when individuals 18 years of age or older, with a valid social insurance number, could begin making contributions. The program’s original intent was to help Canadians save for a new car, renovate a house, start a small business or take a family vacation. But since the launch, it has grown into a way to save for a wide variety of reasons, including longer-term financial goals, like retirement. As of 2021, an estimated 15 million Canadians have a TFSA.



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