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TFSA Contribution Rules

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RRSPs RRIFs and TFSAs -> Tax-free savings accounts (TFSAs) -> Contribution rules

Tax-free savings account (TFSA) contribution rules

Income Tax Act s. 207.01(1)

The basic rules relating to tax-free savings account include the following:

bullet Contributions can be made by Canadian residents aged 18 or over at the time of the contribution.
bulletUp to $5,000 per year ($5,500 for 2013) can be contributed, with unused contribution room being carried forward.
bulletThe annual contribution limit is indexed to inflation in $500 increments (i.e., to the nearest $500), in the same manner as personal tax credits and tax brackets are indexed.  The 2014 TFSA limit is $5,500.
bullet There is no lifetime limit to the amount of contributions.
bullet If a person has contribution room, but no funds to contribute, they may contribute funds given to them by their spouse or common-law partner, with no attribution of income to the spouse.
bullet Contributions can consist of in kind contributions of qualified investments.  At the time the investments are contributed, there is a deemed disposition.  Any resulting
bullet capital gain will be taxable
bullet capital loss cannot be claimed - see our article Transfer shares to a registered account, but not at a loss!

The easiest way to establish a record of your TFSA contribution room is to file a tax return annually, even if you have no taxable income.  Your TFSA contribution room can then be seen through Canada Revenue Agency's My Account or Quick Access e-services, or you can phone CRA to get the balance.  However, the amount reported will only be correct as of January 1st of each year, after financial institutions have reported all TFSA transactions for the prior year, which may not be until the end of March.  Thus, it's important to track this yourself.  The history of annual limits for each year is shown in this table:  The first year that contributions could be made was 2009.

Years TFSA Annual
Limit
Cumulative
Total
2009-2012 $5,000 $20,000
2013 5,500 25,500
2014 5,500 31,000

CRA says that Individuals who have not filed returns for prior years (because, for example, there was no tax payable) would be permitted to establish their entitlement to contribution room by filing a return for those years or by other means acceptable to the CRA.

The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month.  This means there will be a tax payable even if the excess amount is withdrawn in the same month in which it is contributed.

There is no deadline for contributions to a TFSA, as the unused contribution room is carried forward into the next year.  However, a withdrawal in any year does not increase the TFSA room until the following calendar year.  Thus, if you are thinking of making a withdrawal close to year end, make sure it is done by December 31st, in order to have the withdrawal amount added back to the TFSA room sooner.

Tax Tip:  If you have a loss on your investment, don't transfer it to your TFSA.

Previous:
bullet What is better - TFSA or RRSP?

Next:
bullet Don't over contribute!
bullet Unused contribution room
bullet TFSA investments - qualified, non-qualified, and prohibited
bullet TFSA withdrawals
bullet Asset transfer (swap) transactions
bullet Taxes payable re TFSA
bullet Marital breakdown
bullet Death of the TFSA holder

Back to TFSA main page.

 

Revised: December 27, 2013

 

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