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TFSA benefits and contribution limits

Region: Ontario Answer # 184

The Tax-Free Savings Account or TFSA was introduced by the Canadian government in 2008 and came into effect January 1, 2009. A TFSA is a registered account that allows Canadian residents to earn investment income tax-free. Unlike an RRSP, your TFSA contributions are not tax-deductible. However, when you make a withdrawal from a TFSA, you do not pay tax on any investment income earned.

Anyone who is a Canadian resident and over the age of 18 years old with a Social Insurance Number (SIN) can open a TFSA with a financial institution. You may have more than one TFSA so long as your total contributions among all TFSAs do not exceed the available contribution room.

Contribution limits

Once a TFSA is opened, unused contribution room from previous years can be carried forward to the current year. Contribution room is calculated based on any unused contribution room from previous years (up-to the yearly limits). Also, contribution room includes the amount of TFSA withdrawals from previous years. It is important to note, that although there are yearly contribution limits, the total cumulative TFSA contribution amount has not been capped and continues to increase every year. In other words, you can continue contributing, up-to the yearly limit, for as long as the program exists.

The maximum contribution limits since it’s introduction are as follows:

  • 2009, 2010, 2011 and 2012:  $5,000
  • 2013 and 2014:   $5,500
  • 2015:   $10,000
  • 2016, 2017 and 2018:  $5,500
  • 2019:  $6,000

The 2020 TFSA contribution limit is $6,000.

For someone who has never contributed to a TFSA, this means his or her total cumulative TFSA contribution room starting January 1, 2020 is $69,500.

It is important to understand there is a 1% per month penalty for over-contributing to a TFSA. This commonly occurs when an individual withdraws and then re-contributes funds too soon. While withdrawing funds from a TFSA increases available contribution room, it only gets added back in during the next calendar year. So, you must wait a full 12 months before adding money to a TFSA that was at its contribution limit.

Also, federal rules prohibit the withdrawal of funds from a TFSA and the subsequent transfer of them to a plan at another financial institution within the same calendar year. Individuals who do so are subject to penalties.

You can obtain more information about TFSAs from a financial advisor.

For general information, contact Canada Revenue Agency.

For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact Tax Chambers LLP

Retirement ready?

You want to balance your mortgage, kids’ education, and retirement savings. Are you saving enough to meet your goals and be ready for retirement? An advisor has the expertise to get you on track to achieve your long-term goals, and can help you set realistic planning targets and stick to your plan. Contact an Empire Life advisor today for more information.


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