With its unique tax advantages and flexibility, a Tax-Free Savings Account (TFSA) is a
powerful way to save – for today and tomorrow. You pay no tax on the interest income, dividends or capital gains
earned within your TFSA. What’s more, any TFSA withdrawal you make is also tax-free. Ready to get strategic with
your savings? Here’s what you need to know to take full advantage of your TFSA contribution room.
What is the annual TFSA contribution limit?
The Canadian government restricts the amount of money you can contribute to your TFSA each year. This TFSA
contribution limit – also called the TFSA dollar limit – changes periodically: it’s indexed to inflation and
then rounded to the nearest $500.
The 2023 TFSA limit is $6,500 per year. However, it’s important to know the distinction between the TFSA limit
and your personal TFSA contribution room. Here are two reasons that your contribution room may be higher than
the annual limit:
- Unused contribution room carries forward, with no limit on how much room you can defer to the future.
- Contribution room for any withdrawal you make from a TFSA is restored the following year. If you make a TFSA
withdrawal one year, you’ll regain that exact amount of room – in addition to the new annual limit – the
Here’s a recap of the annual TFSA limit for each year since the program’s inception.
TFSA limit 2023 and earlier
These yearly amounts are reflected in your accumulated TFSA contribution room, which grows each year from the age
of 18. For example, if you were 18 or older in 2009, and have not yet contributed to a TFSA, you will have
$88,000 of contribution room available in 2023. A person who turned 18 in 2017 would have $41,500 of available
Keep in mind that the money you contribute must come from after-tax savings; you can’t transfer money directly
from a Registered Retirement Savings
Plan (RRSP) or your pre-tax income.
How to find your TFSA contribution room
The Canada Revenue Agency (CRA) no longer adds TFSA contribution room to your Notice of Assessment. However, you
can obtain this information by:
- Registering for “My Account for Individuals” on the CRA website.
- Downloading the “MyCRA” mobile app.
- Calling the Tax Information Phone Service (TIPS) at 1-800-267-6999.
Penalties for over contributing
If you make a TFSA contribution that exceeds your allocated room, you’ll face a penalty tax of 1% per month on
the excess funds. For example, if you exceeded the maximum contribution by $4,000, you would owe a $480 penalty
($40 per month x 12 months) after one year.
TFSA withdrawal rules
Tax-free withdrawals can be made at any time and for any purpose (pending the terms of any specific contracts, if
your money is invested). There are no limits on how much you can withdraw from your TFSA at any one time.
Withdrawals do not count as income, which means they have no impact on benefits like the GST Credit, Employment
Insurance and Old Age Security.
As mentioned earlier, withdrawals from your account can be replaced, but you will not recover that contribution
room until the following year. For example, if you were to withdraw $1,000 from your maxed-out TFSA today, you
wouldn’t be allowed to recontribute that $1,000 until January 1 of the next calendar year – at which point you
could add $1,000 to your account, plus the annual TFSA limit.
How to open a TFSA
Most financial-services companies – like banks, credit unions and insurers – offer TFSA accounts. To open an
account, you simply need to provide your date of birth and SIN number. You can open as many TFSA accounts as you
like, but TFSA rules stipulate that your total contributions across all accounts cannot exceed your TFSA
Now that you have a deeper understanding, think a TFSA is the right way forward for you?
Show me why I should open a TFSA with Co-operators
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*In the province of Quebec, the authorized representatives are Financial Security
Advisors who have been duly certified by the Autorité des marchés financiers.
The information contained in this report was obtained from sources believed to be reliable;
however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation
advice. We are not tax advisors and we recommend that clients seek independent advice from a professional tax
advisor on tax related matters. Mutual funds are offered through Co-operators
Financial Investment Services Inc. to Canadian residents except those in Quebec and the territories. Segregated
funds and annuities are administered by Co-operators Life Insurance Company. Co-operators Life Insurance Company and Co-operators
Financial Investment Services Inc. are committed to protecting the privacy, confidentiality, accuracy and
security of the personal information that we collect, use, retain and disclose in the course of conducting our
business. Visit www.cooperators.ca/en/PublicPages/Privacy.aspx for more
information. Co-operators® is a registered trademark of The Co-operators Group Limited.