9 in 10 Canadians Underuse Their TFSAs

Meet Sally

Sally turned 18 in 2015. This means that she would start accruing TFSA room in 2015, and would have: 

• 2015: $10,000 

• 2016, 2017, 2018: $5,500 each year ($16,500) 

• 2019, 2020, 2021, 2022: $6,000 each year ($24,000) 

• 2023: $6,500 

• 2024, 2025: $7,000 each year ($14,000) 

• Sally’s total TFSA contribution room as of 2025: $71,000 

Contributions

Starting early with your contributions is another key to success. The longer your money has to grow, the more benefit you’ll get from compounding returns—where your earnings generate even more earnings. Setting up automatic contributions or making a lump sum contribution early in the year can give your investments the maximum runway to grow tax-free. Additionally, TFSA contributions are not tax deductible. Thus, money deposited into a TFSA is with after-tax income. So, what is the benefit? Most investment growth within a TFSA is tax-free, and withdrawals are not subject to tax. income earned from U.S. assets is taxable in Canada, with the tax treatment depending on the type of income—such as interest, dividends, rental income, or capital gains—and is applied at your marginal tax rate. 

In 2025, Sally opens a TFSA and contributes $60,000. Fast forward to 2030—her TFSA is now worth $80,000, made up of her original $60,000 in contributions plus $20,000 in investment growth. When she decides to withdraw the full $80,000, she pays zero tax. That means the entire $20,000 in gains stays in her pocket, completely tax-free. 

Restoring Contribution Room

One of the TFSA’s best features is that when you make a withdrawal, that amount is added back to your contribution room in the following calendar year—on top of any new annual limit you’re granted. 

In 2025, Sally starts with $71,000 of available TFSA contribution room. She contributes $60,000 during the year, leaving $11,000 unused. Later in 2025, she withdraws $5,000 from her TFSA. 

When 2026 begins, Sally’s available contribution room increases by the new annual limit of $7,000, plus the $5,000 she withdrew the previous year is added back—giving her a total of $23,000 in available room for 2026. 

TFSA contribution room at the beginning of 2025		$71,000
Minus: Contributions made in 2025	–	$60,000
Unused TFSA contribution room at the end of 2025		$11,000
Plus: 2026 TFSA dollar limit	+	$7,000
Plus: Total withdrawals made in 2025	+	$5,000
TFSA contribution room at the beginning of 2026		$23,000

This flexibility allows you to access funds when needed—without permanently losing your valuable contribution room. 

Summary

The TFSA’s flexibility means it can serve both short-term and long-term goals. You can use it to build an emergency fund or save for a big purchase while also investing for retirement. Withdrawals are tax-free and your contribution room is restored the next year, so you can access your money when needed without sacrificing future growth. 

For retirees, the TFSA offers unique advantages. Unlike RRSPs, which you can no longer contribute to after age 71, TFSA contributions can continue throughout retirement. Plus, TFSA withdrawals do not affect your taxable income, providing you with greater control over your tax situation in your golden years. 

Finally, the TFSA works best when combined strategically with other registered accounts like RRSPs and RESPs. While RRSPs can help reduce your taxable income now, the TFSA offers tax-free growth and withdrawals, making the two a powerful one-two punch in your overall financial plan. By making the TFSA a cornerstone of your investment strategy, you can maximize your tax-free returns and build a stronger financial future.  

Ready to make the most of your TFSA? Contact us today for a complimentary review of your investment portfolio. 

Sincerely, 

Harrison Brown, B.Sc., CFA
Portfolio Manager
Alitis Investment Counsel Inc.