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What’s a TFSA?
A TFSA, which stands for Tax-Free Savings Account, was introduced in 2009 by the federal government as a way for Canadians to accrue investment gains tax-free. This means that within a TFSA account, revenues generated from investments such as capital gains, dividends or interests will not be taxed.
Who is eligible?
Canadian residents with a valid social insurance number who have reached the age of majority in their province.
What is allowed to be held in a TFSA?
In spite of its name, a TFSA is not limited to a savings account, many other types of investment vehicles can be held within a TFSA account, including:
- Guaranteed investment certificate (GICs)
- Bonds
- Stocks
- Exchange traded funds (ETFs)
- Mutual funds
How much can you contribute?
The annual TFSA contribution limit for 2024 is $7,000 Canadian dollars. The maximum contribution room depends on your year of birth. For someone who was born in 1991 or before (i.e. 18 years or older at the time when TFSA was introduced), the cumulative contribution limit is $95,000.
Because your contribution room starts to accumulate in the year in which you turn 18, rather than the year in which the TFSA was introduced, your cumulative contribution limit will be different if you were born in 1992 or later. Please refer to the table below to find out your cumulative contribution limit (this would be your contribution room assuming you never contributed to a TFSA).
| Year of birth | Cumulative contribution limit | Year of birth | Cumulative contribution limit |
|---|---|---|---|
| 1991 and prior | $95,000 | 1999 | $48,500 |
| 1992 | $90,000 | 2000 | $43,000 |
| 1993 | $85,000 | 2001 | $37,500 |
| 1994 | $80,000 | 2002 | $31,500 |
| 1995 | $75,000 | 2003 | $25,500 |
| 1996 | $69,500 | 2004 | $19,500 |
| 1997 | $64,000 | 2005 | $13,500 |
| 1998 | $54,000 | 2006 | $7,000 |
One way to find out your contribution room would be via your Canada Revenue Agency (CRA) account (My Account for Individuals). However, the information on My Account may not always be up to date as the CRA relies on what financial institutions have provided them and sometimes there are delays in reporting. It would be safer if you also do your own tracking of TFSA withdrawals and contributions.
When can I retrieve money from a TFSA?
You can retrieve money from a TFSA account at any time without penalty. However, if money is retrieved in a given year, this amount cannot be put back until the following calendar year, or otherwise there would be a penalty.
FAQs
What happens if you overcontribute to your TFSA?
According to the Canadian Revenue Agency, you will be charged a 1% penalty on the excess amount, for each month that the excess amount stays in your account. For example, if your contribution led to an excess amount of $1,000 above your limit, you will be charged a $10 penalty for every month your account remains in excess.
Do revenues generated from your investments count towards the contribution limit?
The limit is for new contributions made. Therefore, if capital gain surpasses the contribution limit, this would not be an issue. There are no limit on capital gains. Similarly, dividends and interests gained within a TFSA are not considered contributions.
Can I claim a capital loss?
For any investment held within a TFSA, one cannot declare a loss in case of a capital loss.
Can I invest in US stocks within a TFSA?
You can hold US stocks in a TFSA. However, although Canadian stocks are exempt from paying taxes, taxes may apply on US stocks. US dividend stocks are not best placed in a TFSA. TFSAs don’t have retirement account recognition and, therefore, a 15% foreign withholding taxes would apply.
Disclaimer:
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting/tax professionals. Wealth Illustrated will not be held liable for any problems that arise from the usage of the information provided on this page.
