Launched in 2009, the tax-free savings account is a registered account that allows eligible individuals to put money aside, up to the annual TFSA contribution limit. Contributions to a TFSA are taxed, but the earnings in the account are tax-free.
For example, assume you contributed $1,000 to your TFSA and used the money to buy a stock at the beginning of the year. The price of the stock increases ten-fold, and you now have $10,000 in your TFSA. If you sell the stock and withdraw the $10,000 from your TFSA, you don’t have to pay tax on it.
Instead of leaving surplus funds in their businesses, small business owners can put the money in a TFSA and let the money grow until they need it. They can also use a TFSA to build up their retirement savings.