Your Personal Contribution Room
Just like RRSPs, the CRA has placed limits on how much you are allowed to contribute to a TFSA. But unlike an RRSP, this limit is not dependent on your taxable income. Rather, it is based on your previous TFSA transaction history.
Your annual contribution room is made up of three things:
- Your TFSA dollar limit
- Any unused room from last year
- Any withdrawals made last year
Your dollar limit will be between $5500 and $57,500, depending on how old you are. If you turned 18 in 2018, then it’s $5500. If you were at least 18 in 2009, then it’s $57,500. If you turned 18 between 2009 and 2018, your dollar limit is somewhere between those extremes:
Veronica opened a TFSA in 2016. She was at least 18 in 2009, which means the minute she opened her TFSA, she was allowed to contribute up to $46,500 ($5000 each in 2009-2012, + $5500 each in 2013-2014 + $10,000 in 2015 + $5,500 in 2016).
Carl opened a TFSA in 2017. He turned 18 in 2012, which means the minute he opened the TFSA, he was allowed to contribute up to $36,500 ($5000 each in 2012-2013, + $5500 in 2014 + $10,000 in 2015 + $5500 in 2016 + $5500 in 2017).
Your unused contribution room depends on what you’ve done in the past. If you made contributions in previous years, then this has eaten into your limit:
Sara opened her TFSA in 2009 and was at least 18 at the time. She contributed as much as she was allowed to ($5000 or $10,000) every year and has never made any withdrawals. Sara has zero unused contribution room for 2018 and has to wait until sometime in 2019 before she can contribute more (up to the 2019 dollar limit of $5500).
Within-TFSA profits/losses and your contribution room
Any earnings you make within the TFSA do not count towards your contribution room. So if you made $2000 in profit inside a TFSA, that $2000 is free and clear on two levels: it’s tax-free, and it doesn’t eat into your contribution room. This means if you want to get aggressive with some of your investment options, you can do so and not have to worry about it eating into your contribution room.
Likewise, any losses you generate within the TFSA do not count. So if you lost $2000 inside a TFSA, you can’t count that as a withdrawal. If you contribute more money to the TFSA in the same year, in an attempt to get that $2000 back in interest or profit, you run the risk of over-contributing and getting dinged by the CRA. Do your math carefully if you don’t want to wait for the next calendar year!