Being aware of the TFSA Limit is important to avoid the 1% per month over-contribution penalty. TFSA’s main feature is that investment gains on a TFSA are tax-free.
The TFSA Limit is made up of: your unused TFSA limit from previous years, the yearly new TFSA limit amount, and withdrawals from the previous year will be added to your current year’s TFSA limit. TFSA limit amount refreshes every year. Also, over contributions are subject to a 1% monthly tax by the CRA.
In addition, investment gains or losses will not affect your TFSA limit.
TFSA Limit = Unused limit from previous years + New Yearly TFSA Limit + Withdrawals on the previous year – Contributions made this year
To further illustrate how the TFSA limit works, here are a few examples and a detailed look at how the TFSA limit works.
Annual TFSA Limit
New amounts will be added to your TFSA Limit every year. The new annual TFSA limit amount is adjusted to inflation and is rounded to the nearest $500. (Source, canada.ca)
| Year | TFSA Contribution Limit |
| 2022 | $ 6,000 |
| 2021 | $ 6,000 |
| 2020 | $ 6,000 |
| 2019 | $ 6,000 |
| 2018 | $ 5,500 |
| 2017 | $ 5,500 |
| 2016 | $ 5,500 |
| 2015 | $ 10,000 |
| 2014 | $ 5,500 |
| 2013 | $ 5,500 |
| 2012 | $ 5,000 |
| 2011 | $ 5,000 |
| 2010 | $ 5,000 |
| 2009 | $ 5,000 |
Unused TFSA Limit from Previous Years
Unused TFSA limits from previous years are added to your current year’s TFSA limit. For example, total deposits to TFSA of $2,000 and a TFSA limit of $6,000 will mean the unused limit of $4,000 will be added to next year’s TFSA limit.
Unused TFSA limits are not lost and will simply carryforward to future years.
TFSA Lifetime Limit
In case you have never contributed to a TFSA and were aged 18 or older on 2009, your TFSA lifetime limit is $81,500. These were the total TFSA limits every year since 2009 when TFSA first became available in Canada.
When does the TFSA Limit Starts
Eligibility to open a TFSA and the TFSA limit starts whenever you are at least 18 years old, have a valid SIN, and are a resident of Canada for tax purposes. The new TFSA limit amount for the year will not be credited whenever your SIN no longer be valid or you are not a resident of Canada for tax purposes.
Also, you may have to be at least 19 years old (age of majority) to open a TFSA account in some provinces such as BC and YK. In these provinces, your TFSA limit starts at 18 but you may not be able to open a TFSA account until you turn 19.
- Be at least 18 years old
- Have a valid SIN number
- Resident of Canada for Tax Purposes
TFSA Withdrawals from the Previous Year
TFSA withdrawal from the previous year will be added to your current year’s TFSA limit. For instance, four withdrawals of $1,000 each from a TFSA on a calendar year will mean your next year’s TFSA limit will be added by $4,000.
The new TFSA limit amount from withdrawals and the annual limit are added at the start of every calendar year.
How to Maximize Investments on a TFSA
Most people are using TFSA (Tax-Free Savings Account) as a regular savings account. While this may be better than a regular savings account, interest on a savings account underperforms the returns from stocks historically.
Historically, stocks (S&P 500 Index) have returned an average of around 10% per year compared to current rates of about 2% on a savings account.
TFSA can hold ETFs, mutual funds, stocks, and bonds. Diversification of investments in a TFSA account is possible.
At the same time, assets with a high potential return usually comes with a high risk of losing money. Researching first before buying stocks or mutual funds may help to reduce risk.
For more details, here are the 5 steps to Invest in Stocks on a TFSA. Furthermore, here are the TFSA Investment Options (stocks, bonds, etc.)
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Can I max out my TFSA all at once?
TFSA can be maxed out all at once up to your TFSA limit amount. However, your bank or Financial Institution may have a daily limit on transfers which you may be subject to when transferring funds to a TFSA.
Do you have to claim TFSA on income tax return?
TFSA does not have to be claimed on the income tax return. Investment gains, dividends, and interest income, deposits, and TFSA withdrawals are tax-free. As such, losses on TFSA investments are not tax deductible. Also, deposits to TFSA have a limit. Exceeding the TFSA limit is subject to a penalty.
TFSA Limit Examples
TFSA Limit – Example #1
Sarah turned 18 on 2014 and have a valid SIN number since then. She never opened a TFSA account. The annual TFSA limits since 2014 will carryforward up to today.
Thus, she will have a total TFSA contribution limit of $56,000 on 2022 (combined limits from 2014 to 2022).
Assuming she deposits $10,000 to a TFSA account on 2022, the new contribution limit for 2023 will be the total of the unused $46,000 limit plus the new annual TFSA limit for 2022.
TFSA Limit – Example #2
Micah turned 18 on 2020 and never contributed to a TFSA account. The $6,000 TFSA limit from 2020 will carryforward to 2021. In total, her TFSA limit for 2021 will be $12,000.
She transferred $4,000 to a TFSA account on 2021, the remaining unused contribution limit on 2021 was $8,000 (12,000 – 4,000). The unused $8,000 limit from 2021 will carryforward to 2022. Her TFSA limit for 2022 will then be $14,000 ($6,000 new limit + unused $8,000 limit).
TFSA Limit – Example #3
John max out the TFSA contribution limit on 2020 and previous years. On 2021, he deposit $2,000 to a TFSA account with Bank A and another $3,000 deposit to a TFSA account with Bank B.
He withdrew $4,000 from a TFSA in March 2021 and another $1,000 withdrawal in September 2021.
On 2022, Person B will have a new contribution limit of $12,000 (new limit of $6,000 + unused limit of $1,000 + total previous year’s withdrawal of $5,000).
TFSA Limit – Example #4
Max deposit $5,000 to a TFSA and used $4,500 to purchase stocks. The value of stocks dropped to $2,500. He decided to sell the stocks.
The $2,000 loss will not affect the amount of the TFSA limit. Also, there is no tax deduction on losses inside a TFSA.
On the other hand, assume the value of stocks appreciates to $6,500. This will also not affect the remaining TFSA limit amount.
In either case, withdrawals would be added back to the contribution limit for next year. For example, $2,000 worth of any stock is sold, and the cash is withdrawn from TFSA. There would be a $2,000 more contribution limit for the next year.
To skip calculations, the TFSA Contribution Limit can also be found on a CRA (Canada Revenue Agency) Individual account. CRA updates the TFSA Contribution Limit amount every January or February. Also, most financial institutions specify the number of deposits/withdrawals for the year on the December monthly statement.
Visit canada.ca for more information about TFSA.
TFSA Limit Over Contribution Penalty
Deposits to TFSA above your TFSA limit is subject to a 1% monthly tax per month by the CRA. The monthly tax will continue until the excess amount is withdrawn from a TFSA account.
In addition, CRA may fully tax the investment profits of the over-contributed amount.
TFSA Limit can also be Found on your CRA My Account.