What can I do with my TFSA?

Updated: Feb 10, 2021

Note* The following does not constitute legal or financial advice and the publisher does not guarantee the accuracy of this information. Please seek professional consultation before making investment decisions.





The Tax-Free Savings Account (TFSA) is a tax-sheltered account that lets you contribute after-tax dollars and not pay taxes on the money you earn inside that account.


Example: You receive a 500 dollar paycheque from your job and deposit into the TFSA. When you make the deposit you won't get any tax deduction like you would with an RRSP but when you invest that money within the account you won't pay taxes on what you make. So if you invest that 500 dollars into a stock paying a $50 dividend you won't pay any tax on that 50$. If you end up selling that same stock for $100 you won't pay any tax on that either.


"Sounds cool! How do I get one?". This is actually an important question yet people hardly ever talk about it. If you want to open a TFSA you should usually do so at your bank and or through a brokerage, both can be done online. Which of these you choose depends on what you want to do with the money in your TFSA which we will discuss below.


In a TFSA you can hold the following

*if listed on a designated stock exchange (see bottom of page)

Cash

Mutual Funds

Stocks (on certain exchanges)

GIC

Bonds

Put options -- you can buy them (go long)

Call options -- you can buy them and sell "covered calls"

ETF units

REIT Units

Royalty trust units

Limited partnership units


This list is not exhaustive but covers the most common types of investments. Obviously, you have plenty of options. If you don't want to have to do any buying or selling and would rather have somebody else look after your money then your bank will likely put you into mutual funds. Mutual funds have high fees but don't require you to manage much. If you want to purchase stocks, ETFs, etc. then you can open a TFSA through a brokerage. Your bank likely has a brokerage but you can also look at Questrade, Interactive Brokers, Wealth Simple trade and others. Once you have opened your brokerage account you are free to invest in the allowed holdings and will pay no taxes as long as you are not determined to be carrying on a business.


If you are determined to be carrying on a business in your registered accounts you may not receive the tax benefits discussed earlier. What constitutes carrying on a business is not precisely defined by the CRA but two important considerations are the frequency of transactions and period of ownership. This means that activities like day trading should be avoided and long term buy and hold strategies are favourable.


A list of designated exchanges: https://www.canada.ca/en/department-finance/services/designated-stock-exchanges.html


Qualified Investments: https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-10-registered-plans-individuals/income-tax-folio-s3-f10-c1-qualified-investments-rrsps-resps-rrifs-rdsps-tfsas.html


Carrying on a business: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it479r/archived-transactions-securities.html