Maple News reports that newcomers to Canada looking to build long-term wealth may benefit greatly from opening a Tax-Free Savings Account (TFSA)—a flexible and efficient investment tool available to Canadian residents.
A TFSA allows individuals to earn investment income—such as interest, dividends, or capital gains—without paying income tax on those earnings. While TFSA contributions are made with after-tax income and are not tax-deductible, the entire growth within the account and all withdrawals remain tax-free. This makes it an attractive option for both newcomers and longtime residents alike.
Comparable to the Roth IRA in the United States, the TFSA is designed to encourage saving and investing by allowing funds within the account to grow undisturbed by taxation. For Canadian tax residents, including those on work or study permits, permanent residents, and citizens, the TFSA offers an excellent mechanism to accumulate wealth efficiently.
Consider this example: if Martha, a Canadian resident, contributes $7,000 annually to her TFSA from 2024 to 2065 and earns a 6% average annual return, she could amass $868,333.78 in returns. If the same income were taxed at a marginal rate of 30%, she would lose over $260,000 to taxes—savings that the TFSA protects.
Any Canadian resident aged 18 or older with a valid Social Insurance Number (SIN) is eligible to open a TFSA. Importantly, eligibility is not based on immigration status but on residency for tax purposes. Therefore, international students, temporary foreign workers, and new permanent residents may all qualify—as long as they meet the criteria set by the Canada Revenue Agency (CRA).
Contribution limits accumulate annually. In 2024, the limit is set at $7,000. If an individual has been eligible but hasn’t contributed in prior years, they can carry forward and use the unused contribution room, allowing for significant lump-sum additions if financial conditions permit. The TFSA limit, introduced in 2009 at $5,000, is indexed to inflation and adjusted in $500 increments, helping Canadians maintain purchasing power over time.
For newcomers and young professionals aiming for financial independence or future stability, a TFSA serves as a cornerstone of effective financial planning. Beyond regular savings, a TFSA can house a broad range of investments, including mutual funds, stocks, bonds, and exchange-traded funds (ETFs), providing flexibility according to individual risk tolerance and goals.
As more newcomers integrate into Canada’s economy, understanding and utilizing tools like the TFSA can make a meaningful difference in their financial journey.
Maple News will continue to provide updates and insights to help immigrants and residents alike thrive financially in Canada.