Tax - Free Savings account - wikipedia Tax - Free Savings account `` TFSA '' redirects here. For other uses, see TFSA ( disambiguation ). The Tax - Free Savings Account ( TFSA, French : Compte d'épargne libre d'impôt or CÉLI ) is an account available in Canada and South Africa that provides tax benefits for saving. Investment income, including capital gains and dividends, earned in a TFSA is not taxed in most cases, even when withdrawn. Contributions to a TFSA are not deductible for income tax purposes, unlike contributions to a Registered Retirement Savings Plan ( RRSP ). Despite the name, a TFSA does not have to be a cash savings account. Like an RRSP, a TFSA may contain cash and / or other investments such as mutual funds, certain stocks, bonds, or Guaranteed Investment Certificates ( GICs ). Contents 1 History 2 Canadian features 2.1 Contribution room 2.2 Eligible investments 2.3 Creditor protection 2.4 Over-contributions 2.5 Foreign dividend withholding tax 2.6 Risks for U.S. citizens and U.S residents 3 South African features 4 Comparison to RRSP 5 Similar accounts in other countries 6 See also 7 References 8 External links History The first Tax - Free Savings Account was introduced by Jim Flaherty, then Canadian federal Minister of Finance, in the 2008 federal budget. It came into effect on January 1, 2009. This measure was supported by the C.D. Howe Institute, which stated ; `` This tax policy gem is very good news for Canadians, and Mr. Flaherty and his government deserve credit for a novel program ''. Furthermore, the Canadian Federation of Independent Business, Canadian Bankers Association, Bank of Montreal economist Doug Porter, the Canadian Chamber of Commerce, and the Canadian Taxpayers Federation also supported this tax policy. In 2015 South Africa introduced TFSA accounts to encourage low to middle - class citizens to save money. Canadian features The TFSA is an account in which Canadian residents 18 years and older can save or invest. Income earned on contributions is not taxed. The TFSA account - holder may withdraw money from the account at any time, free of taxes. Contribution room The maximum annual contribution room for each year prior to 2013 was $5,000 per year. Beginning in 2013 it was increased to $5,500 per year. The $5,500 annual contribution limit was indexed to the Consumer Price Index ( CPI ), in $500 increments, in order to account for inflation. The 2015 federal budget raised the contribution limit to $10,000, and eliminated indexation for inflation, beginning with the 2015 tax year. However, in December 2015 a newly elected government proposed to restore the pre-2015 contribution limit of $5,500 for 2016, which will be indexed for inflation after that. As of January 1, 2018, the total cumulative contribution room for a TFSA is $57,500 for those who have been 18 years or older and residents of Canada for all eligible years. Years TFSA Annual Limit Cumulative Total 2009 -- 2012 $5,000 $20,000 2013 -- 2014 $5,500 $31,000 2015 $10,000 $41,000 2016 -- 2018 $5,500 $57,500 Any unused contribution room under the cap can be carried forward to subsequent years, without any upward limit. Eligible investments A TFSA can hold any investments that are RRSP - eligible, including publicly traded shares on eligible exchanges, eligible shares of private corporations, certain debt obligations, instalment receipts, money denominated in any currency, trust interests including mutual funds and real estate investment trusts, annuity contracts, warrants, rights and options, registered investments, royalty units, partnership units, and depository receipts. Creditor protection This section does not cite any sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. ( September 2017 ) Assets within a TFSA are not protected from creditors in the event of bankruptcy or a financial judgement that results from legal proceedings against the account - holder, whereas those within an RRSP are protected. Unless the investments in the TFSA are in a segregated fund ( which then follows the Insurance act rules ). Over-contributions A withdrawal in the year will increase the available contribution room, not in the current calendar year, but on January 1 of the following year. An over-contribution may occur when an individual ( who has already maximized his TFSA contributions ) might have the mistaken belief that a withdrawal from the TFSA will immediately create contribution room and ' re-contribute ' the withdrawn funds later in the same calendar year. In the 2012 tax year CRA sent notices to about 74,000 taxpayers about TFSA over-contributions, compared to about nine million TFSAs existing at the end of 2012. About 76,000 notices were sent in 2011 and 103,000 in 2010. Foreign dividend withholding tax Unlike an RRSP, a TFSA is not considered by the United States Internal Revenue Service to be a pension plan. Therefore, the tax treaty between the U.S. and Canada foregoing the U.S. withholding tax on dividends in registered pension plans does not apply to TFSA accounts, subjecting Canadians in most cases to a 15 % U.S. tax withheld on dividends paid on shares of U.S. corporations. The tax withheld can not be credited against other payable taxes as would be the case with non-registered accounts. To get around this problem, one exchange - traded fund manager, Horizons ETFs Group, offers an ETF that uses swap contracts to replicate the return of the underlying dividend - paying stocks in the fund without actually holding any of those stocks. However, due to the fees charged by the counterparty to the swap agreement, as well as the fund 's own management fee, its expenses exceed the actual withholding tax payable for the underlying stocks, if those were to be held directly in the TFSA. Risks for U.S. citizens and U.S. residents Canadian mutual funds held in TFSAs are generally considered by the IRS to be investments in a passive foreign investment company ( PFIC ), and must be reported as such ( on form 8621 ) by U.S. citizens. PFICs can be very disadvantageous as, absent certain elections, `` excess '' distributions are always taxed at the highest marginal rate. Also, income is averaged over the duration of the investment, and interest is then charged from the date the income is deemed to have occurred, resulting in effective tax rates as high as 50 % or more. The TFSA may also be a grantor foreign trust from the perspective of the U.S.U.S. citizens with a grantor foreign trust are required to file IRS Forms 3520A ( due March 15 ) and 3520 ( due at the same time as Form 1040 ). These forms are both complicated and both involve potentially large penalties for late filing. Like other non-U.S. accounts the TFSA may also need to be included on a U.S. citizen 's FBAR and tax - FBAR. Earnings inside the TFSA are taxed by the U.S. South african features The lifetime contribution limit is R500000 and the annual limit is R33000. Comparison to RRSP This section does not cite any sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. ( October 2014 ) The tax treatment of a TFSA is the opposite of a Registered Retirement Savings Plan ( RRSP ). There is an income tax deduction for contributions to an RRSP, and withdrawals of contributions and investment income are all taxable. In contrast, there is no tax deduction for contributions to a TFSA, and there is no tax on withdrawals of investment income or contributions from the account. Unlike an RRSP, which must be withdrawn before the holder turns 71, the TFSA does not expire. If an account - holder withdraws funds from a TFSA, his or her contribution room is increased by that amount on the 1st of January after the withdrawal. In an RRSP, the contribution room is not increased to reflect withdrawals. The Canada Revenue Agency ( CRA ) describes the difference between a TFSA and an RRSP as follows : `` An RRSP is primarily intended for retirement. The TFSA is like an RRSP for everything else in your life. '' Interest paid on money borrowed to invest in either TFSA or RRSP is not tax deductible. Similar accounts in other countries The TFSA is similar to a Roth Individual Retirement Arrangement in United States, although the TFSA has fewer restrictions. In the UK, similar tax advantages have been available in Individual Savings Accounts since 1999. See also Taxation in Canada Registered Retirement Savings Plan Registered Education Savings Plan References Jump up ^ Canada Revenue Agency ( 2014 - 02 - 14 ). `` TFSA : Types of investments ''. CRA.gc.ca. Retrieved 2014 - 06 - 14. Jump up ^ `` Get ready for new Tax - Free Savings Account '', Oakville Today, 2008 - 06 - 19. Retrieved on 2008 - 06 - 20. Jump up ^ `` TFSA 's : the biggest thing since RRSP 's '', National Post, 2008 - 02 - 27. Retrieved on 2008 - 06 - 23. ^ Jump up to : `` Budget : Report Card '', National Post, 2008 - 02 - 26. Retrieved on 2008 - 06 - 23. Jump up ^ `` Federal Budget Prudent for Today 's Economic Conditions '', Canadian Bankers Association, 2008 - 02 - 26. Retrieved on 2008 - 06 - 23. Jump up ^ `` 2008 Budget '', The Canadian Chamber of Commerce, 2008 - 02 - 26. Retrieved on 2008 - 06 - 23. Jump up ^ `` A New Tax Savings Plan & Modest Spending Growth '', Canadian Taxpayers Association, 2008 - 02 - 26. Retrieved on 2008 - 06 - 23. Jump up ^ `` The Tax - Free Savings Account ''. Canada Revenue Agency. Retrieved 30 December 2012. Jump up ^ TFSA contribution room, Canada.ca Jump up ^ Evans, Pete ( 21 April 2015 ). `` Budget 2015 : TFSA limit hiked to $10,000 as election budget delivers few goodies ''. CBC.ca. CBC / Radio - Canada. Retrieved 21 April 2015. Jump up ^ Notice of Ways and Means Motion to amend the Income Tax Act Jump up ^ Liberals detail how they will roll back TFSA contribution limits, The Globe and Mail, 7 December 2015 Jump up ^ Bill Morneau confirms tax cuts coming for ' middle class ', CBC News, 7 December 2015 Jump up ^ http://www.cra-arc.gc.ca/tfsa/ Jump up ^ `` Tories Introduce Tax - Free Savings Account '', CTV, 2008 - 02 - 26. Retrieved on 2008 - 06 - 20. Jump up ^ https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/types-investments.html Jump up ^ `` Misunderstanding this simple TFSA rule could cost you a lot '', by Rob Carrick, The Globe and Mail, Wednesday, Feb. 26 2014 Jump up ^ Your tax, RRSP questions answered The Globe and Mail, 1 December 2010 Jump up ^ ' Where should I hold U.S. dividend stocks ? ' Financial Post, 16 April 2013 Jump up ^ Understanding Swap - Based ETFs MoneySense, 6 June 2011 Jump up ^ Foreign dividend withholding tax and your TFSA The Globe and Mail, 4 April 2013 Jump up ^ More Swap Talk With Horizons Canadian Couch Potato, 10 June 2011 Jump up ^ HXS Horizons S&P 500 Index ETF horizonsetfs.com, retrieved 12 January 2014 Jump up ^ http://www.fidelity.ca/cs/Satellite/en/public/products/regulatory_documents/pfic Jump up ^ `` Archived copy '' ( PDF ). Archived from the original ( PDF ) on 2014 - 07 - 14. Retrieved 2014 - 06 - 11. Jump up ^ http://www.moneyweb.co.za/mymoney/moneyweb-tax/south-africans-invest-tax-free-savings-accounts/ Jump up ^ `` 2015 TFSA update ''. www.taxclinic.ca. The Tax Group. Retrieved 10 February 2016. Jump up ^ How the ' TIFSA ' can be your tax free nest egg Jump up ^ `` Cashing in on TFSAs '' ( PDF ). Benefits Canada. May 2008. Retrieved 2009 - 02 - 17. External links Government of Canada info about TFSAs Canada Revenue Agency info about TFSAs CRA IT - 320 : Qualified Investments -- Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds Retrieved from `` https://en.wikipedia.org/w/index.php?title=Tax-Free_Savings_Account&oldid=833391004 '' Categories : Tax - advantaged savings plans in Canada Banking in Canada Hidden categories : Articles containing French - language text Articles needing additional references from September 2017 All articles needing additional references Articles needing additional references from October 2014 Wikipedia articles needing clarification from October 2014 Talk Contents About Wikipedia Français Ido 中文 Edit links This page was last edited on 31 March 2018, at 07 : 49. Text is available under the Creative Commons Attribution - ShareAlike License ; additional terms may apply. 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Question: when did the tax free savings account start
Answer: January 1, 2009