The contribution limit for TFSAs in Canada in 2022 is $6,000 – unchanged from 2019, 2020 and 2021.
But what exactly does this mean for your personal TFSA? Let’s take a look at how you can stay within the rules with your tax-free savings accounts.
TFSA Contribution Limits – Lifetime
From its inception in 2009, the Government of Canada has set annual contribution limits for TFSAs, and each year, these limits are reviewed.
But this isn’t quite as simple as it seems as if you don’t use all of your contribution room each year, it carries forward.
You may have made the maximum contributions every year since you opened your TFSA, or you may have made less one year, and more the next.
The key is that your overall contribution room is static – hence the term ‘lifetime limit.’
How TFSA Contribution Room is Calculated
From the table above, it may seem like the contribution limit calculated by the government each year is fairly random, but it’s actually carefully indexed to inflation (rounded to the nearest $500).
These annual limits are well-publicized by the government and all major banks, but they only tell you the basics, not your personal contribution room.
You can figure out your own total TFSA contribution room in one of two ways:
- If you were born prior to 1991 (meaning you were 18 or older in 2009, when the rules were set up), your TFSA lifetime contribution room is the total of every year’s contribution limit. As such, by 2022, this running total is up to $81,500.
- If you were born after 1991, add up the contribution limits of every year since you turned 18, until now. This is your lifetime TFSA contribution room.
It’s interesting to note that although the age of majority (i.e. the age when you are legally considered to be an adult) varies across provinces – meaning that if you are in Newfoundland and Labrador, New Brunswick, Nova Scotia, British Columbia, Northwest Territories, Yukon or Nunavut, you cannot physically open a TFSA until you’re 19 – the contribution limits are set federally and are calculated from age 18 onwards, regardless of where you live.
So if you’re in B.C., you can’t open a TFSA until you’re 19, but your contribution limit starts calculating from when you turned 18!
TFSA Contribution Room Remaining
So now you know your TFSA contribution limit.
How do you know what you can contribute now, this year? It’s simple!
You can calculate your personal TFSA contribution room remaining by:
- Taking the TFSA limit for the current year
- ADDING any unused TFSA contribution room from previous years
- ADDING any withdrawals made from your TFSA in the previous year
Or, even more simply, you can use CRA MyAccount to check the status of your TFSA – your contributions thus far, your limits, and what room you have left.
It’s important to note that all your contributions – even recontributions after withdrawals – count towards your limit.
So TFSAs are best served by minimizing unnecessary withdrawals in order to protect your overall contribution room.
TFSA Over Contributions
So why do contribution limits matter? TFSAs are designed to be tax-free.
To protect this status, any contributions over the limit become subject to tax.
More specifically, a monthly tax of 1% on any excess in the TFSA will be levied for as long as the excess remains in the account.
This can quickly add up.
It also opens a can of worms in terms of CRA scrutiny and potential penalties if you unfairly benefit from increases in the value of your TFSA while you had an excess in the account.
To keep your life as simple as possible and to avoid inadvertently veering into overcontribution, it’s usually recommended that you avoid having multiple TFSAs across institutions, as the limits are not per TFSA, but per person.
Frequently Asked Questions
- Who qualifies for a TFSA?
Any Canadian resident with a valid SIN, of age of majority in their province of residence, may open a TFSA.
- Can I withdraw money from my TFSA?
Yes – it is usually very easy to withdraw funds from your TFSA, as with any other savings account.
- Can I transfer money between TFSAs?
Yes. It is significantly more efficient to transfer money between TFSAs than it is to withdraw money from one and deposit it into another. Deposits counts as a new contribution, and may lead to overcontribution problems.
- What kind of investment can I make with my TFSA?
TFSAs are like RRSPs in their investment potential. You can choose to invest in bonds, stocks, ETFs, options, mutual funds, cash and more. Any “qualified” investment (as defined by the Government of Canada) is possible through your TFSA.
- What if I lived outside of Canada during the past decade?
For any year you have not been a resident of Canada, you lose that year’s TFSA contribution room. For example, if you lived in Canada from 2009 to 2020, but not in 2021, your TFSA contribution limit is the sum of the limit for years 2009 through 2020, but does not include the 2021 limit.
- Can I contribute to my spouse’s TFSA?
No, you cannot directly contribute to a spouse’s (or anyone else’s) TFSA.
- How much can I withdraw from my TFSA?
Any amount – there is no limit.
- Do I have to pay income tax on my TFSA withdrawals?
TFSA withdrawals do not count as taxable income, so you do not have to pay income tax on them. They also do not affect your income-tested benefits or tax credits.
- If I withdraw from my TFSA, do I lose that contribution room?
No, but you have to wait until the next year for that withdrawn amount to be added onto your TFSA contribution room.
- Can I open a joint TFSA account?
No, you can only have individual accounts.
- Can I hold multiple TFSAs?
Yes. You can hold multiple TFSAs with one or more financial institutions.