The TFSA is just an account with some tax rules around it. It is how the money that is deposited into this account gets invested that will make it a halal TFSA or not. The focus here should not be the account type but the underlying investments. As long as that cash is being used to buy Shariah-compliant investments such as the Manzil Mortgage Fund then you should be able to sleep peacefully at night.

Tax-Free Savings Account (TFSA)

Let’s invest now, and halal-party later!

TFSA stands for Tax-Free Saving Account. This is a great product with a bad name. It should have been called Tax-Free Investment Account (TFIA)  because it can hold all the same types of investments as any other investment account (RRSP, Non-Reg, RESP etc…). Again, its not the account type you should worry about from a halal perspective, it always comes down to how the money is invested.

What’s so good about them?

Unlike an RRSP, TFSA doesn’t come with tax deductibility even though you are investing after-tax dollars into the account. Conversely,  TFSAs allow you to earn investment returns that you will never pay tax on. For example, if you invested $10,000 and it grew to $20,000 in your TFSA, you can cash out the whole $20,000 tax-free with no strings attached.

Things to keep in mind

Just like an RRSP, there are limits to how much you can invest in a TFSA. For 2020, the amount is $6,000 which is the same as the 2019 limit. Also similar to an RRSP is the fact that you can carry unused room forward. If you’ve never contributed to a TFSA before and you have been in Canada and above the age of 18 since 2009 you have the ability to contribute up to $69,500 (see table). 

 

Year Contribution Limit
2009, 2010, 2011, 2012 $5,000
2013, 2014 $5,500
2015 $10,000
2016, 2017, 2018 $5,500
2019, 2020 $6,000
Total $69,500

 

Another great benefit of TFSAs is that you get your contribution room back when you make a withdrawal. If you decide to take $10,000 out this year, you’ll have an extra $10,000 of contribution room available for next year.

Can anyone contribute to a TFSA?

If you want to open and start investing in a TFSA, you must be a Canadian citizen, have a valid Social Insurance Number (SIN), and be at least 18 years old. Since you are the account holder, you’ll be the only one who can make contributions, withdrawals, and determine how the funds will be invested.

Are TFSA limits cumulative?

Yes, they are! Contribution limits refer to the maximum amount you can contribute to your TSFA each year, and your contribution room automatically accumulates every year. This is how, in some instances, you can have up to $69,500 in contribution room (refer to the table above). 

Are my TFSA contributions tax-deductible?

No, they are not. TFSA contributions are not tax-deductible like RRSP contributions and you can’t claim them on income tax returns. That’s because the TFSA contributions, investment returns, and withdrawals are already exempt from taxation. The major benefit of a TFSA is its tax-deductibility of contributions but rather having your earnings in your TFSA grow tax-free.

How many TFSAs can I have?

You can have as many TFSA accounts as you like, just make sure the total contribution room of all accounts is the same as it would be if you only had one account. Meaning, if your contribution room for 2020 is $6,000 – it’s $6,000 in total, no matter how many TFSA accounts that money is split over. Having multiple TFSAs can make it harder to keep track of contributions.

Can I have a Joint TFSA?

To put it nicely, no.  Because everyone has their own contribution limits that cannot be combined there can only be one owner for a TFSA. You are, however, able to designate beneficiaries and successor holders to your TFSA.

At the end of the day, it all boils down to discipline and values. By investing in halal TFSAs, you’re voting for ethical investments that are in the best interest of not only Muslims but humanity at large! So let’s do this. Put a plan in place and start saving today for your child’s education, and do it in a way that aligns with your values as a Muslim and as a human being overall.