The TFSA was introduced in the 2008 Federal Budget as an investment option for Canadian residents 18 years of age and older, whereby the income earned on the contributions are not taxed. The TFSA differs from RRSPs in that a RRSP allows you to deduct the amount contributed from your taxable income, and the investments in your RRSP grow tax free. But when you withdraw the RRSP, you are subject to tax on your RRSP contributions and any amount earned. The TFSA has no tax savings upon contribution; however, any income earned within the TFSA are tax-free when income is earned and upon withdrawal.
On January 1, 2009, the TFSA came into effect with the first year contribution rate set at $5,000. The annual contribution rate is indexed to the Consumer Price Index and will change in $500 increments.
If you have not contributed to a TFSA yet, don’t be alarmed; unused contribution space can be carried forward. As at 2014, the accumulated contribution amount is $31,000. (The contribution rate for 2009 to 2012 was $5,000 per year, and in 2013 the annual amount increased to $5,500 for 2013 and 2014.)