9 things to know about TFSAs
- TFSAs are available to Canadians age 18+.
- Starting in 2015, the contribution limit is no longer indexed to inflation and is set at $10,000 per year.
- You can save tax free for any goal you want (car, home, vacation).
- You don’t need earned income to contribute.
- You don’t have to set up a TFSA or file a tax return to earn contribution room.
- You can take money out when you want, for any reason, without paying any tax.
- If you take money out, you can re-contribute it the following year, in addition to the annual maximum.
- You can hold a wide range of investments in a TFSA, like cash, GICs, bonds, stocks and mutual funds.
- You can put money into your spouse’s or common-law partner’s account.
2015 increase of TFSA contribution limitAs proposed in the 2015 Federal Budget, the annual TFSA dollar limit for 2015 has been increased to $10,000. This change is subject to parliamentary approval. You can learn more from the Government of Canada.
Contribution limits by year
Starting in 2015, the TSFA contribution limit is no longer indexed to inflation. Prior to 2015, annual limits varied by year. If you don’t contribute the full amount each year, you can carry forward the unused amounts, based on the contribution limits for each year. Here are the annual contribution limits for each year since 2009:
Making transfers between TFSAs
Penalties for breaking the rules
- Over-contributions – If you contribute too much to your TFSA, you’ll pay a penalty of 1% per month on the excess amount until you remove it. If you over-contribute deliberately, you’ll pay a 100% tax on any gains or income you make on the excess amount.
- Prohibited and non-qualified investments – Any gains or income you make from holding these investments in your TFSA will be taxed at 100%. Example: shares of a company in which you have a significant interest (10% or more).
- Asset transfer transactions – You’ll pay 100% tax on any gains made by swapping investments between your TFSA and a registered or a non-registered account. This is to discourage people from using their TFSA to realize gains on investments that would otherwise be subject to tax. Example: you swap cash in your TFSA for an investment from your RRSP.
Take a look at these examples to learn more about how Revenue Canada calculates tax penalties on over-contributions to TFSAs.