Tax-free financial savings account is a little bit of a misnomer. Whereas you need to use it for easy financial savings, consider it extra precisely as an funding holding account to retailer issues like exchange-traded funds (ETFs), guaranteed investment certificates (GICs), bonds, shares and, sure, plain previous money. Whilst you do should abide by the set quantity of contribution room every year, any progress you earn on these investments is not going to have an effect on your contribution room for the present yr or years to come back. Plus, the revenue earned is tax-free (extra on that below). Any resident of Canada who is eighteen or older and has a sound social insurance coverage quantity can open a TFSA.
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- Minimal quantity: $1,000
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Is a TFSA actually tax-free?
TFSA contributions received’t scale back your taxable revenue and generate a tax refund, not like registered retirement savings plan (RRSP) contributions. Nonetheless, the place you do save on taxes with a TFSA is that the return you earn inside your TFSA shouldn’t be taxable. Meaning revenue from issues like interest, dividends or capital gains aren’t topic to revenue tax. Any revenue earned within the account—even when it’s withdrawn—is usually tax-free. We are saying “usually” as a result of overseas dividends, for instance, could also be topic to withholding tax, however the dividends don’t go in your tax return. (Unsure the place to speculate? Learn TFSA vs RRSP: How to decide between the two.)
How does TFSA contribution room work?
Your TFSA contribution room is the utmost quantity you may contribute to your TFSA for any given yr. Your contribution room and your age have an effect on the quantity of contribution room you’ve got. In contrast to your RRSP contribution room, the contribution restrict doesn’t rely on how a lot revenue you earn. You start accumulating TFSA contribution room from the yr you flip 18 (so long as you’re a resident of Canada), even when you didn’t file an revenue tax return that yr or have a TFSA but.
Your contribution room is the overall quantity of the next:
- The TFSA greenback restrict for the present yr
- Any contribution room you’ve got leftover from earlier years
- Any withdrawals comprised of your TFSA within the earlier yr
The TFSA contribution restrict for 2025 is $7,000. In the event you turned 18 earlier than the yr 2009 and have by no means contributed, your most lifetime TFSA contribution restrict is $102,000 as of January 1, 2025. In the event you take cash out of your TFSA, you get that room again on January 1 the next yr. Simply don’t go over your restrict or make the error of considering you get your TFSA room again for withdrawals immediately.
TFSA contribution limits by yr
Beneath, you’ll discover the annual contribution restrict for every year for the reason that inception of the TFSA in 2009. Every year, the brand new annual restrict is listed to inflation and rounded to the closest $500. There’s one exception: in 2015, the restrict elevated from $5,500 to $10,000; it was lowered to $5,500 once more the next yr.
| 12 months | TFSA annual restrict | TFSA cumulative restrict |
|---|---|---|
| 2009 | $5,000 | $5,000 |
| 2010 | $5,000 | $10,000 |
| 2011 | $5,000 | $15,000 |
| 2012 | $5,000 | $20,000 |
| 2013 | $5,500 | $25,500 |
| 2014 | $5,500 | $31,000 |
| 2015 | $10,000 | $41,000 |
| 2016 | $5,500 | $46,500 |
| 2017 | $5,500 | $52,000 |
| 2018 | $5,500 | $57,500 |
| 2019 | $6,000 | $63,500 |
| 2020 | $6,000 | $69,500 |
| 2021 | $6,000 | $75,500 |
| 2022 | $6,000 | $81,500 |
| 2023 | $6,500 | $88,000 |
| 2024 | $7,000 | $95,000 |
| 2025 | $7,000 | $102,000 |
What occurs when you overcontribute to your TFSA?
In the event you exceed your contribution restrict, you’ll be topic to a 1% penalty tax per month. Fortunately, this 1% tax solely applies to the quantity that’s been overcontributed, not the entire account worth.
What are you able to maintain in a TFSA?
Certified investments for TFSAs embody: