Tax-free financial savings account is a little bit of a misnomer. Whereas you should use it for simple financial savings, consider it extra precisely as an funding holding account to retailer issues like exchange-traded funds (ETFs), assured funding certificates (GICs), bonds, shares and, sure, plain outdated money. When you do must abide by the set quantity of contribution room annually, any progress you earn on these investments is not going to have an effect on your contribution room for the present 12 months or years to return. Plus, the revenue earned is tax-free (extra on that beneath). 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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Is a TFSA actually tax-free?
TFSA contributions gained’t scale back your taxable revenue and generate a tax refund, in contrast to registered retirement financial savings plan (RRSP) contributions. Nevertheless, the place you do save on taxes with a TFSA is that the return you earn inside your TFSA will not be taxable. Meaning revenue from issues like curiosity, dividends or capital good points aren’t topic to revenue tax. Any revenue earned within the account—even when it’s withdrawn—is usually tax-free. We are saying “typically” as a result of international 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 you can resolve between the 2.)
How does TFSA contribution room work?
Your TFSA contribution room is the utmost quantity you possibly can contribute to your TFSA for any given 12 months. Your contribution room and your age have an effect on the quantity of contribution room you could have. Not like your RRSP contribution room, the contribution restrict doesn’t rely upon how a lot revenue you earn. You start accumulating TFSA contribution room from the 12 months you flip 18 (so long as you’re a resident of Canada), even if you happen to didn’t file an revenue tax return that 12 months or have a TFSA but.
Your contribution room is the full quantity of the next:
- The TFSA greenback restrict for the present 12 months
- Any contribution room you could have leftover from earlier years
- Any withdrawals constituted of your TFSA within the earlier 12 months
The TFSA contribution restrict for 2025 is $7,000. Should you turned 18 earlier than the 12 months 2009 and have by no means contributed, your most lifetime TFSA contribution restrict is $102,000 as of January 1, 2025. Should you take cash out of your TFSA, you get that room again on January 1 the next 12 months. Simply don’t go over your restrict or make the error of pondering you get your TFSA room again for withdrawals straight away.
TFSA contribution limits by 12 months
Under, you’ll discover the annual contribution restrict for annually because the 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 12 months.
| 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 if you happen to overcontribute to your TFSA?
Should you exceed your contribution restrict, you’ll be topic to a 1% penalty tax per thirty days. 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 embrace:
