TFSA Contribution Room and Limits
The annual contribution limit began at $5000 per year, but was raised in 2013 to $5500 to account for inflation. This increase was done again in 2019, which has an annual limit of $6,000 (which stayed the same in 2020).
|TFSA Cumulative Limit|
|2020 – $6000|
|2019 – $6000|
|2018 – $5500|
|2017 – $5500|
|2016 – $5500|
|2015 – $10,000|
|2014 – $5500|
|2013 – $5500|
|2012 – $5000|
|2011 – $5000|
|2010 – $5000|
|2009 – $5000|
Total as of 2020: $69,500
This means that if you have never opened a TFSA but were eligible to open one as of 2009, you can deposit the full $69,500 into your TFSA!
If you haven’t contributed the full allowable amount in any given year, you can carry that amount forward as unused contribution room.
Increasing your contribution room
When you make withdrawals from your TFSA, your contribution room can actually increase! This is where it gets a bit tricky and where some confusion lies.
Example: In 2018, Monica’s TFSA is worth $60,000 as a result of some of her investments increasing in value. She decides to withdraw the full $60,000 to renovate her kitchen. In 2020, she is allowed to deposit up to $72,000 into her TFSA ($60,000 + 2019’s $6,000 limit + 2020’s $6,000 limit).
Do be careful!
In the example above, although Monica can withdraw money from her TFSA at any time, she cannot re-contribute at any time. Doing so could result in penalties.
Example: In March 2020, Monica withdraws $72,000 from her TFSA for a kitchen renovation. In October 2020, she deposits $72,000 back into her TFSA. She then receives a notice from Canada Revenue Agency that she has over-contributed for the year and will have to pay a penalty.
This is where it’s important to remember that a TFSA is not a bank account and should not be treated as one! Making deposits is easy; as long as you stay within your contribution limit for the year, there’s not much to worry about. However, when you make a withdrawal, and then want to make another deposit later on, ensure you’re doing so within the TFSA rules. In essence, if you want to make sure you don’t accidentally over-contribute in any given year, make sure you re-contribute in the next calendar year.
Example: Because Monica withdrew $72,000 from her TFSA in March 2020 for her kitchen renovation, she should wait until at least January 2021 to re-contribute the full $72,000 (in fact she would actually have $78,000 of contribution room available by this date due to the additional $6,000 available for 2021). This way she will avoid getting a notice from CRA and paying a penalty.
If you over-contribute to your TFSA (you exceed your allotment for the year), you can expect to pay a 1% penalty to CRA per month. This penalty applies even if you over-contribute for only a few days.
As well, if you feel you can “cheat the system” by purchasing investments that yield more than the 1% penalty, don’t be fooled! CRA can deem this as a case of deliberate over-contribution and as an “advantage”, and then charge you additional tax!
How to find out how much contribution room you have available
Not sure how much contribution room you have left? Contacting CRA directly is your best bet. Contact CRA online or call them at 1-800-267-6999.