A Tax-Free Savings Account (TFSA) is a type of investment account available in Canada that allows individuals to earn investment income, such as interest, dividends, and capital gains, on a tax-free basis. It was introduced in 2009 to encourage Canadians to save for various financial goals.

Key Features of a TFSA:

1. Tax-Free Growth: Any income earned within the account, such as interest, dividends, or capital gains, is not subject to taxes—even when withdrawn.
2. Contribution Limits: There is an annual contribution limit set by the Canadian government, which accumulates over time if you do not use it. For example:
   • The limit for 2023 was $6,500.
   • If you have never contributed since the TFSA started and were eligible every year, you could contribute the total accumulated limit (as of 2023, this would be $88,000).
3. No Withdrawal Penalties: You can withdraw funds at any time for any purpose, and withdrawals are not taxed. The amount you withdraw gets added back to your contribution room for the following year.
4. Eligibility:
   • You must be a Canadian resident aged 18 or older.
   • You need a valid Social Insurance Number (SIN).
5. Flexibility in Investments: You can hold various types of investments in a TFSA, such as:
   • Cash
   • Stocks
   • Bonds
   • Mutual funds
   • Exchange-Traded Funds (ETFs)
6. Not Income-Tested: Contributions, withdrawals, or the income earned in the TFSA do not affect government benefits such as Old Age Security (OAS) or the Canada Child Benefit (CCB).

Common Uses of a TFSA:

• Emergency savings
• Retirement savings
• Saving for a home, vacation, or other large expenses
• Investment growth without tax implications

It’s important to avoid over-contributing, as this will result in a penalty tax of 1% per month on the excess amount. Keeping track of your contribution room is key to maximizing the benefits of your TFSA.