Let's understand a Tax-Free Savings Account (TFSA) better by answering some basic questions about the topic.
1. Who can contribute to a TFSA?
Residents in Canada who are 18 years of age or older, with a valid Social Insurance Number (SIN) and a TFSA account.
2. Is there a maximum age for contributing to a TFSA?
No. Unlike RRSPs, you can keep contributing to your TFSA at age 72 or beyond.
3. What's the annual contribution limit?
$7,000 for 2024 (with future indexing for subsequent tax years); previously $5,000 per year from 2009 to 2012, $5,500 each in 2013 and 2014, $10,000 in 2015, $5,500 per year from 2016 to 2018, $6,000 per year from 2019to 2022 and $6,500 for 2023.
Up to $95,000 total TFSA room in 2024, if no past TFSA contributions were made AND you were eligible for a TFSA since its inception in 2009.
4. Is that all I can contribute?
Not necessarily. Any amounts withdrawn are added to your contribution room for the following year. And, you can contribute using unused contribution room from past years.
Log on to My Account or call Tax Information Phone Service (TIPS) to find out your contribution room.
5. Can I contribute an asset "in kind"?
Yes, you can still contribute assets like bonds, shares or mutual funds currently held in a non-registered account into your TFSA "in kind". But if you swap assets (exchange assets (including cash) held in registered or non-registered accounts for assets held in TFSAs), you'll have to pay a significant "advantage" tax.
6. What if I don't use all my annual contribution limit?
You can "carry forward" unused contribution room indefinitely, to use in future years, even if you haven't opened a TFSA account.
7. What if I contribute more than allowed?
Excess TFSA contributions are penalized and the tax payable is 1% per month (similar to RRSP excess contributions) until withdrawn. Unlike with RRSPs, you are not allowed any penalty-free over contributions to a TFSA. In addition, income from deliberate overcontributions are subject to advantage tax at 100% of the benefit less the 1% per month tax above. You're solely responsible for over contributing to your TFSAs.
8. Are TFSA contributions tax-deductible?
No, you cannot deduct TFSA contributions on your tax return.
9. Can I borrow to invest in a TFSA?
Yes, you can. But you cannot deduct interest paid to borrow money to invest in a TFSA (since TFSA income or growth is not taxable).
10. Who should contribute to a TFSA?
Your best savings strategy depends on many individual factors, including your investment goal(s) (short or long term), current and future income tax brackets, entitlement to income-tested benefits or credits (such as the Guaranteed Income Supplement (GIS), etc.), and whether you've already maximized your RRSP contributions. A Vancity advisor has decision tools to help choose the right solution for you.
11. Can I give my spouse money to contribute to their TFSA?
Yes. And neither the income earned in their TFSA, nor withdrawals they make, are taxable to you, as long as your spouse spends rather than invests any TFSA withdrawals.
12. Can I contribute if I become a non-resident of Canada?
While you can still keep your TFSA, once you are non-resident you can no longer contribute to your TFSA, nor do you accumulate more contribution room.
13. If I leave Canada for a period, but then return, do I accumulate contribution room during the period I am away?
Only if you were still considered a "factual" resident of Canada (i.e. you still maintain ties to Canada by having a financial account, driver's license, and do not file taxes as a non-resident), you may continue accumulating TFSA contribution room while abroad.
14. Is there a simple way to track my TFSA contribution limit?
Log into your CRA My Account to check your TFSA contribution limit, review and verify your past TFSA withdrawals, and more.
15. What if I have more questions?
See these links:
The response set out above is for your information only and is based on general assumptions and the facts presented to Vancity. While our goal is to offer current, accurate and clearly expressed information, Vancity does not warrant the accuracy, adequacy or timeliness of this information. Changes to the assumptions or facts or to any applicable laws or regulations could affect the validity of this information. The information is not intended to be investment, legal, accounting, tax or other advice and you should not rely on it without seeking the advice of professional advisors to ensure your particular circumstances are properly considered. Vancity is not responsible for loss or damage that results from reliance on this information.
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