RRSPs RRIFs and TFSAs -> Tax-Free Savings Accounts (TFSAs) -> Contribution Rules and Limits
Income Tax Act s. 207.01(1)
The basic rules relating to tax-free savings account include the following:
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 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. At the current rate of inflation (1.9%) the TFSA contribution limit will increase to $6,500 in 2023.
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 This means there will be a tax payable even if the excess amount is withdrawn in the same month in which it is contributed.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 or other registered account.
If you become a non-resident of Canada, you can continue to hold a TFSA and not pay tax on the income within it. However, you cannot contribute to the TFSA while you are a non-resident, and you will not accumulate contribution room. See Canada Revenue Agency information on Leaving Canada.
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TFSA Investments - qualified, non-qualified, and prohibited
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Revised: January 26, 2021
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