The Government of Canada introduced the Tax-Free Savings Account (TFSA) program in 2009. It is a way for individuals who are 18 and older to invest and have all earnings in the plan free of tax throughout their lifetime. Unlike an RRSP, contributions to a TFSA are not deductible for income tax purposes.
While it depends on your personal financial situation, investing in a TFSA may suit your long-term needs better than contributing to your RRSP. Always consult your financial planner prior to making a contribution.
In contrast to an RRSP, withdrawals from your TFSA are not taxed, so any amount of contributions made over the life of your investment will be tax-free, if or when you need it.
When your investment grows, the income from the growth such as interest, dividends, or capital gains, will not be taxed. Outside of selling the home you live in, there are few opportunities in Canada to completely avoid income taxes on investment growth.
In addition to your annual contribution rate, your unused room can be carried forward indefinitely. Plus if you withdraw money, the amount is added back to your contribution room for the following year.
Unlike an RRSP that must close and the funds transferred out at a certain age, a TFSA can remain open for life.
A TFSA does not increase your income when in retirement so when you withdraw from your TFSA your eligibility to receive support from applicable government retirement and other pension benefits will be at their maximum. Ensuring a robust amount of savings in retirement (RRSP and TFSA) also protects the investor from any potential changes, reductions, or eliminations of existing government support programs.