Maximize Your Tax-Free Savings Account (TFSA):

A Tax-Free Savings Account (TFSA) allows you to earn tax-free income (i.e., dividends, interest, and capital gains) from the investments that you hold within your TFSA. You can only contribute up to a specified amount to your TFSA each yer.

Any amount that you withdraw from your TFSA this year is added to your contribution limit on January 1st of the following year. For example, suppose that you withdraw a total of $2,000 from your TFSA in 2025. That $2,000 withdrawal will be added to the $7,000 in TFSA contribution room that you get for the 2026 tax year. So, for 2026, you can contribute $9,000 to your TFSA without exceeding your TFSA contribution limit.

That is, you should withdraw the TFSA funds before December 31, 2025. This allows you to replace the funds on or after January 1, 2026. In contrast, if you make the TFSA withdrawal in January 2026, you will need to wait until 2027 before you can recontribute those fund

When the owner of a TFSA passes away, the tax implications mainly depend on whether the owner had a surviving spouse or common-law partner who qualified as the TFSA's "successor holder." To qualify as the "successor holder" of a Tax-Free Savings Account, an individual must meet all the following conditions.

  • The individual was the spouse or common-law partner of a TFSA holder at the time of the holder's death;

  • The deceased TFSA holder named the individual as the TFSA's successor holder—either by the deceased's will or by a successor-holder designation that the deceased had filed with the financial institution maintaining the TFSA; and

  • The individual acquired all the deceased's rights under the TFSA—especially the right to revoke a beneficiary of the TFSA.

When the original holder of the Tax-Free Savings Account (TFSA) dies, the successor holder essentially becomes the new account holder. Consequently, the account remains a TFSA, and the successor does not face any tax implications for inheriting the deceased's TFSA funds or on any income generated within the TFSA after the original owner's death.

Furthermore, the value or cost of the newly acquired Tax-Free Savings Account does not affect the successor holder's TFSA contribution room unless the deceased overcontributed to the TFSA before their death. If the deceased overcontributed, that overcontribution amount will decrease the successor holder's available contribution room.

If a successor holder hasn't been appointed when the original TFSA holder passes away, the account loses its TFSA status after a one-year grace period. After that, the account is (i) deemed to dispose of its holdings at fair market value and (ii) considered an inter vivos trust for tax purposes.

If you become a non-resident of Canada for tax purposes, you can keep your existing TFSA, and the investment income earned within it will stay tax-free in Canada. However, you cannot make new TFSA contributions while you are a non-resident.

If you contribute to your TFSA after becoming a non-resident, the CRA will charge a 1% monthly penalty tax on the contributed amount for each month it remains in your account. Additionally, you will not earn new TFSA contribution room in any year during which you are a non-resident.

Jane Zhao