TAX-FREE SAVINGS ACCOUNT (TFSA)

TFSA contribution room is indexed for inflation and annual limits vary by year. If you don’t contribute the full amount each year, you can carry forward the unused amounts, based on the contribution limits for each year. Here are the annual contribution limits for each year since 2009:

As of January 1, 2020, the total cumulative contribution room for a TFSA is $69,500 for those who have been 18 years or older and residents of Canada for all eligible years. Canadian residents may only begin accumulating contribution room once they have reached the age of 18. Upon turning 18, one can contribute up to the maximum allowed limit for that year. Annual contribution limits for subsequent years are accumulated in one’s total contribution room.

Assets within a TFSA are not protected from creditors in the event of bankruptcy or a financial judgement that results from legal proceedings against the account-holder, whereas those within an RRSP are protected. Unless the investments in the TFSA are in a segregated fund (which then follows the insurance act rules.)

A withdrawal in any year will increase the available contribution room, not in the year of withdrawal, but on January 1 of the following year. An over-contribution will occur if an individual (whose TFSA contributions have already been maximized) mistakenly believes that a withdrawal immediately creates contribution room and re-contributes the withdrawn funds later the same calendar year.

At any time in the year, if an individual contributes more than their allowable TFSA contribution room, they will be considered to be over-contributing to their TFSA and will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount remains in their account.