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Tax-Free Savings Account (TFSA) Contribution Rules and Limits
Income Tax Act s. 207.01(1)
The basic rules relating to tax-free savings account include the following:
TFSA Dollar Limits and Cumulative Totals
An indexation factor of at least 1.031 is needed for the 2024 taxation year (based on the CPI increase from October 2022 to September 2023), to increase the 2024 dollar limit to $7,000.
Any person who was 18+ in 2009 and has never contributed to a TFSA will have $88,000 contribution room in 2023.
File a Tax Return to Establish TFSA Contribution Room
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.
Tax on Excess Contributions
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 This means there will be a tax payable even if the excess amount is withdrawn in the same month in which it is contributed. See also Taxes Payable re TFSA - link below.
TFSA Contribution Deadline?
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 and you've already contributed the maximum to your TFSA, make sure the withdrawal is done by December 31st, in order to have the amount added back to the TFSA room on January 1st of the following year. See also TFSA Withdrawals - link below.
Non-Deductible Investment Losses
Tax Tip: If you have a loss on your investment, don't transfer it to your TFSA or other registered account.
Leaving Canada - TFSA
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.
In Kind Transfers to Your TFSA
If you transfer securities to your TFSA, this is a taxable disposition of the securities. If there is a gain, it is taxed as a capital gain. If there is a loss, it is not deductible - see this topic above.
You can do an in kind transfer of securities from your RRSP or RRIF to your TFSA, but the withdrawal from the RRSP or RRIF is included in your income.
Canada Revenue Agency (CRA) Resources
RC4466 - Tax-Free Savings Account (TFSA), Guide for Individuals - lots of detailed information, and examples.
RC343 Worksheet - TFSA Contribution Room - use this worksheet to calculate your TFSA contribution room for the current year
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TFSA Investments - qualified, non-qualified, and prohibited
Asset Transfer (Swap) Transactions
Back to TFSA main page.
Revised: February 11, 2023
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