Happy 10th Birthday, TFSA!



Cecilia Tsang

Financial Advisor & Associate Portfolio Manager


The Tax-Free Savings Account (TFSA) is 10 years old this year. The TFSA has been a very powerful tool in tax planning and optimization planning (such as ensuring OAS clawback is minimized) in the ten years since it began.

When the TFSA first came out in January 2009, beneficiary designations were not allowed. It took several months for provinces and territories to sort out the issues surrounding beneficiary and successor holder designations.

The federal TFSA legislation originally signaled a desire to allow such designations on the applications, yet provincial and territorial legislation updates were needed to be able to allow for this.

Thankfully, all territories and provinces (except Quebec) have since amended their respective legislations to allow TFSA designations on applications. What this means is that many who immediately jumped at the chance to open a TFSA account in early 2009 may not have made any designations on their TFSA accounts.

Being able to name a beneficiary on the TFSA makes it a great tool for estate planning, as it allows the funds within a TFSA to bypass the will and estate and instead go directly to the named beneficiaries. There are two different types of designations on a TFSA application. The first is a “beneficiary,” and the second is a “successor holder”.


You may name anyone as your beneficiary. There is a significant benefit to naming a beneficiary as it can greatly simplify your estate, as the example below outlines:

Tracy died with $75,000 in her TFSA. She had named her brother, Mike, as the beneficiary on the TFSA. She had very few other assets. Mike received the entire $75,000 tax- free. Because her other assets were minimal, her will did not have to be probated. If she did not have a beneficiary named in her TFSA, the $75,000 would flow through her will and her executor would likely need to have her will probated.

Successor Holders:

The successor holder must be a spouse (married or common-law) and, at your death, acquires all the rights related to your TFSA (similar to the “successor annuitant” designation on a Registered Retirement Income Fund (RRIF)). The successor holder essentially replaces you as a holder of your TFSA and the plan continues in their name. The successor holder does not need additional TFSA contribution room to take over your TFSA. This means that it can be a very significant tax-savings tool for the surviving spouse to continue to have the TFSA completely tax-free for the rest of their life.

If you are naming your spouse on the designation, it is important to make the appropriate designation of the successor holder instead of a beneficiary, as naming the successor holder ensures a smooth transition and ensures that income earned after your death is not taxed. Without a successor holder designation, the income earned in your TFSA after death would be taxed, as in the example which follows:

Tyler died and left $65,000 in his TFSA at death. He did not have any designations filled out. Thankfully,

Tyler had a will and simply left everything to his spouse, Kim. Six months after Tyler’s death, his TFSA was closed. During these six months, the TFSA had grown by $3,000. As the beneficiary of Tyler’s estate, Kim received $68,000 from Tyler’s TFSA, $3,000 of which was taxable to Kim as ordinary income and the $65,000 completely tax-free.

Kim had already maximized her own TFSA up to this time and thankfully was able to contribute $65,000 of Tyler’s TFSA proceeds (not the entire $68,000) to her own TFSA as an “exempt contribution”. She was able to do this by using form RC240, Designation of an Exempt Contribution Tax-Free Savings Account. She had to file the form with the CRA within 30 days of the TFSA contribution being made and she had to do all of this before December 31st of the year following Tyler’s death. She was NOT able to contribute the additional $3,000 of the income growth accrued in the period between Tyler’s death and the time when the TFSA was terminated. If Tyler had simply designated Kim as a “successor holder” of his TFSA, she would have been able to take over his TFSA account in full and would not have had to worry about filing the RC240, nor would she have had to have paid tax on the $3,000.

These are just some examples to illustrate the significant uses and advantages of TSFAs in the financial planning process. The estate planning process, including the thinking behind designating beneficiaries and successor holders can be very detailed and complicated. It is always important to periodically review all your designations with your advisor on all accounts and be aware of what would ultimately happen to your investments in each account, the consequential taxation of the funds, and your overall portfolio. 

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