Tax Free Savings Accounts (TFSA)

Oct 24, 2022

The Basics

The tax-free savings account (TFSA) was introduced back in 2009 and designed to be a very straightforward savings vehicle. You contribute after-tax dollars to the account and invest them in pretty much anything, with any growth inside the account being tax free. You can withdraw funds whenever you want, for any purpose. If that’s not enough, the full fair market value of whatever you withdraw can be recontributed beginning the following calendar year.

The Limits

There are limits as to how much you can contribute to a TSFA in a particular year.  You are allowed however to carry-forward any unused contributions from the previous year.  If you were 18 or older in 2009, and have not contributed to a TSFA in any of the previous years, your limit for 2022 would be $81,500, calculated using the data below:

The annual TFSA dollar limit for the years 2009 and 2012 was $5,000.
The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
The annual TFSA dollar limit for the year 2015 was $10,000.
The annual TFSA dollar limit for the year 2016 to 2018 was $5,500.
The annual TFSA dollar limit for the years 2019 to 2022 is $6,000.

The Catch

If you accidentally overcontribute to your TFSA beyond your maximum, you can get hit with an overcontribution penalty tax that is equal to one per cent per month for each month you’re over the limit.

The Release

You can ask the CRA to waive or cancel this penalty tax if it can be established that it arose “as a consequence of a reasonable error” and the overcontribution is withdrawn from the TFSA “without delay.” If the CRA refuses to cancel the tax, you can take the matter to federal court, where a judge will determine whether the CRA’s decision not to waive the tax was reasonable.

Need Assistance?

Details of the rules relating to TSFAs can be found on the Canada Revenue Agency site at TFSA – Guide for Individuals

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