Tax planning is often associated with exotic instruments like trusts or involves complicated calculations and transactions. Many times, you may not even be eligible for tax benefits, or you may not have enough taxable income to plan for it. But here’s the thing. Tax planning is not just about reducing the tax liability on the income you have already earned. It is also about seeking ways to earn tax-free income. A Tax-Free Savings Account (TFSA) not only helps you earn a tax-free income but also removes all the complexities of eligibility and calculations, and makes tax planning as simple as buying groceries.
TFSA Ensures No Canadian Is Left Behind
The Canada Revenue Agency (CRA) introduced the TFSA in 2009 to encourage Canadians to save more in good quality investment instruments that are regulated by authorities.
TFSA ensures every Canadian can access a TFSA. You should be 18 years old and a Canadian resident. There are no other eligibility criteria to open a TFSA.
TFSA Contribution Limit: Equal for All
The next eligibility criterion is that you must have a contribution limit, which the CRA sets each year. It is uniform for everyone, regardless of their income. For 2026, the TFSA contribution limit is $7,000.
What can change is your cumulative contribution room, as it depends on your age.
If you were 18 years old in 2009, your total TFSA contribution room is $109,000 in 2026, as the contribution limit kept accumulating all those years, even if you never opened a TFSA. So, if you turned 18 in 2025 and never used a TFSA, your cumulative contribution room is $14,000 ($7,000 each for 2025 and 2026). Just take the historical TFSA contribution limit and add up from the year you turn 18.
| Year | TFSA Contribution Limit |
| 2009 to 2012 | $5,000 |
| 2013 and 2014 | $5,500 |
| 2015 | $10,000 |
| 2016 to 2018 | $5,500 |
| 2019 to 2022 | $6,000 |
| 2023 | $6,500 |
| 2024 and 2025 | $7,000 |
Knowing your contribution is important, as there is a 1% penalty per month if you over-contribute. For instance, Peter turned 18 in 2025 and contributed $20,000 to a TFSA in 2026 while his contribution room was $14,000. His over-contribution of $6,000 will result in $60 per month in TFSA penalty. Peter will have to withdraw the surplus amount to stop the penalty from accumulating.
Tax Benefit of TFSA
A TFSA is open to everyone from 18 to 80 years old. When you contribute to the TFSA, there is no tax benefit on your working income. The benefit lies in the future income.
Where to Invest Your TFSA?
You can use your TFSA contributions to invest in stocks, bonds, ETFs, mutual funds and Guaranteed Investment Certificate (GIC) trading in recognized exchanges like the Toronto Stock Exchange (TSX). The interest, dividend, and capital gain you earn from these investment instruments are tax-free.
There are some exceptions. If you invest in US stocks, any dividends from them will be subject to withholding tax. Also, you cannot invest in private companies, futures and options, or crypto through a TFSA.
When to Withdraw Your TFSA?
There is no limit on when and how much you can withdraw from the TFSA as long as you have that balance in the account. The amount you withdraw gets added to your contribution room in the following year. So, if you withdraw $3,000 in 2025, your TFSA contribution room for 2026 would include the new limit of $7,000, the 2025 TFSA withdrawal of $3,000, and any unused contribution room.
Who Can Contribute to a TFSA?
The best part is that you can source your TFSA contribution from anywhere. Your spouse or parent can contribute money to your TFSA. All you need is the contribution room.
For instance, Barney is a 60-year-old affluent investor and has never contributed to the TFSA. He has a wife and two children over 38 years old, which means they were 18+ in 2009. Barney can contribute $436,000 ($109,000 X 4) in TFSA in 2026 by maxing out the contribution room of himself, wife and kids. The kids and spouses can make tax-free withdrawals.
Simple Tax Planning for Every Canadian
A TFSA is a simple tax plan because there are no restrictions on when or how much you can withdraw, no income or tax rate calculations, and no tax deductions. You simply don’t report any income earned in the TFSA on your tax returns.
You can make the most of the TFSA tax benefit by investing in the right instruments:
Interest income is taxed as ordinary income, making interest-bearing investment instruments inefficient for fighting inflation. TFSA makes your interest income tax-free, thereby bringing tax savings on future income.
The tax-free growth and withdrawal of any type of income – interest, dividend, capital gain – earned in the TFSA make it ideal for growth stocks. While they have the potential to grow your money as their share price increases, there is no assurance that the share price will increase. However, long-term investment in good quality growth stocks can make your capital gain tax-free. In a normal trading account, 50% of the capital gain would be added to your taxable income.
Tax planning with TFSA is as easy as investing in high-interest, high-dividend and high-growth investment securities. Any income earned from these will be taxed at 0%. For other complex tax planning and strategies, seek professional help.
Contact Black and Gill LLP in Etobicoke to Help You with Tax Planning
At Black and Gill LLP, our accountants and tax consultants can provide services such as tax planning and filing. To learn more about how Black and Gill LLP can provide you with the best accounting and tax advisory services, contact us online or call us at 416-477-7681.