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How Much TFSA Contribution Room Do I Have?





Since the inception of the Tax Free Savings Account (TFSA) in 2009, Canadian residents who are over the age of 18 with a social insurance number have been allowed to contribute up to $5000 on an annual basis. Anything less than $5000 is carried over to the following year.

So for the year 2012, if you have never contributed to your TFSA and you are at least 21, you are allowed to contribute $20,000.

In a previous post on TFSA contribution room, if you were lucky enough to grow the $5000 to $100,000 in your Tax Free Savings Account (obviously this would not happen with a typical high interest savings TFSA), and you take out $100,000, the following year, you will be able to re-contribute back the $100,000 in addition to the $5000 allotted for the following year.

Therefore, if you were profitable with your TFSA and you removed the monies from your TFSA, the “extra” contribution room you created stays with your TFSA account forever.

Sometimes though, it is difficult to keep track of the contribution room for the TFSA since one should also be wary of the over contribution penalty. Therefore, most people who have likely profited from the TFSA gains end up being more cautious and only contribute the “maximum” $5000 allotted annually.

What is the Over Contribution Penalty?

As you’re probably already aware, the Canadian Revenue Agency has some pretty strict taxation on over contributions to your tax free savings account. Anything in access of the allowed tax free contribution room is subject to a 1% penalty charged on a monthly basis on the highest excess tax free savings amount.

Therefore, if over contributed from August to December (5 months) by $2000 for the year, 1% of $2000 would be charged, which equates to $100 in extra taxes.

It makes sense to be cautious, but your tax free savings account contributions and withdrawals have been difficult to keep track of, this begs the question, how does one keep track of the TFSA contribution room?

How to Access Information about your TFSA Contribution Room

Although the Canada Revenue Agency is pretty good about letting you know how much unused tax free savings account contribution room you have, sometimes it is difficult to keep track, especially if Notice of Reassessments are done and the “explanation of changes and other important information” appears different in your reassessment.

For example, I noticed that this this year, all it said on my Notice of Assessment for 2011 regarding the tax free savings account was:

“A tax free savings account allows Canadian residents, who are 18 years of age or older, to earn tax free investment income throughout their lifetimes…”

Last year, the Canada Revenue Agency had the courtesy to share the actual dollar amount that I could contribute.

There is one easy way of accessing important information you may need throughout the tax year, and that is to use the Canada Revenue Agency’s Quick Access tool.

To use Quick Access, all you need are:

  • Your social insurance number
  • Your Notice of Assessment (or Reassessment), specifically to access line 150 of the previous year’s tax return (which is your total income reported)
  • Your birth date

Quick Access also gives you information on:

Once you input these numbers, you will be able to access the tax free savings account contribution room for the current year (not including the contributions already done in the current year). Because I cashed out my tax free savings account with a $4000 net gain in 2010, I did not realize that this extra $4000 would be preserved in my contribution room a few years later.

If you would rather speak to someone in person (and wait on hold of course), calling the Canada Revenue Agency’s Tax Information Phone Service (TIPS) can also provide you with the same information. The phone number for TIPS is 1-800-267-6999.

For those lucky enough to have extra contribution room for their tax free savings account, not keeping track of the extra contribution room can yield a pleasant surprise a few years later. For those who enjoy maxing our their tax free savings account contribution room, it’s like finding $5 in your pocket when you least expect it.

I have heard of people increasing their tax free savings accounts to much higher than the typical $20,000 with self-directed tax free accounts since 2009. It would be interesting to hear how readers have done with their TFSA’s.

Here is the TFSA limit for 2013.

About the Author: Clare is a 20-something who lives in beautiful (but expensive) British Columbia and has been working on her frugal living skills and fighting lifestyle inflation. She works to expand her DIY investment knowledge and hopes to enjoy financial independence one day. She enjoys reading personal finance books, freelance writing, but not so much arithmetic.





29 Comments, Comment or Ping

  1. 1. cannon_fodder

    When will the government let us know if they have increased the annual limit?

  2. 2. Jungle

    Thanks, I seemed to have tracked everything except our TFSA room. Did a bunch of withdraws etc so it does get confusing unless you keep track.

    I am waiting until 2013 when everything resets just to be sure, because I did a rough estimate and might be too close to over contributing now.

  3. 3. Elbyron

    Why no mention of the fact that the annual contribution amount is indexed to inflation (rounded to nearest $500), and most importantly, that in all likelihood our limit increase for January 2013 will be $5500. The way the author keeps referring to the “$5000″ annual limit, it seems like they aren’t even aware of this increase at all!

  4. 4. Travnik

    I had no idea that the annual limit has been increased to $5,500.00??? I contribute my $5,000.00 religiously annually when permitted. Can someone please clarify

  5. 5. Jim

    My understanding was that your contribution room only carried forward if you had opened a TFSA. Example, if I opened a TFSA in 2009 with $100 and contributed nothing further between then and now, I would have $19,900 of contribution room. However, if I opened it in 2012 I would only have $5000 of contribution room. Is that wrong?

  6. 6. SST

    @3. Elbyron: “Why no mention of the fact that the annual contribution amount is indexed to inflation (rounded to nearest $500), and most importantly, that in all likelihood our limit increase for January 2013 will be $5500. The way the author keeps referring to the “$5000? annual limit, it seems like they aren’t even aware of this increase at all!”

    Not everyone can be 100% knowledgeable on the subject of which they article. Heck, I’m still waiting on information from Clare’s last MDJ submission.

    Here’s the link for TFSA contributions (which was also omitted in the article):
    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/cntrbtn-eng.html

    Now the interesting part — the TFSA uses a different inflation index calculation than all the other government (tax) measures.
    Contribution allowance jumps $500 for every $250 of “official government inflation” calculated on $5,000 (= 5%).

    The average annual rate of inflation (over ~100 years) in Canada is 3%, thus when things return to normal, and beyond — the rolling 10-yr average inflation rate is 5%…and climbing — the TFSA should see contribution increases at least every two years, if not every year.

    Hope your wage/salary rises in tandem to allow you to take advantage of the extra room!

  7. 7. Goldberg

    @ Jim. That is wrong. You have $20,000, unless you are below 21 yrs old.

    From CRA’s website: “You will accumulate TFSA contribution room for each year even if you do not file an income tax and benefit return or open a TFSA.”

  8. 8. Justin

    Great article Clare. Unfortunately I’m just coming off my student debt so I’m no where near the limits for my TFSA contributions. Bookmarked the article for another day! Thanks!

  9. Don’t count on the TFSA annual limit rising to $10,000 anytime soon. With the government in deficit for the next few years, raising the TFSA limit is the last thing on Flaherty’s mind. The notice of assessment is very inaccurate – it’s best to keep track of your own contribution room, as my notice is incorrect year after year.

  10. 10. SST

    @Sean: “Don’t count on the TFSA annual limit rising to $10,000 anytime soon.”

    Why would we?
    It’s already been established the limit is indexed to inflation, rising every aggregate 5%. Should hit $10,000 in about 20 years, give or take.

  11. 11. Goldberg

    @SST: What Sean is talking about is a Harper promise in the last campaign to raise the TFSA limit to 10k once the deficit is eliminated.

    With the recent Flaherty speech, where he stated the deficit will be 6B higher this year and will take a year or two longer to reach (and who knows what other events could happen until then), the Harper campaign promise looks very unlikely to be possible.

  12. 12. SST

    Why would anyone believe a politician, especially in the throes of vying for votes?

    I’ll believe it when it actually happens (both the limit rise and the deficit fall), until that time the ruling construct is based upon government reported inflation.

    Thanks.

  13. 13. j s

    why is frugal Claire living in BC. Almost done Uni here and can’t wait to exit. sooo expensive

  14. 14. Andrew Spencer

    Wow…tough crowd. Clare, good article.

  15. 15. pds

    Best article on this site is a while…good job

  16. 16. Stu L

    One way to increase your TFSA contribution is by holding only dividend stocks
    in the account. You withdraw the divs’ before year end and this amount is added to you allowable amount the following year. This past January I added an extra $1871.81 to my TFSA for a total of $6871.81. I reached that figure by starting this in the first year these accounts were available and the extra amount built up year after year. Also rather than deposit cash into the acct’ and then buy stocks I buy them outside in an open taxable acct’ and transfer them into the TFSA “In Kind”. I just hate wasting contribution room on fees.

  17. 17. Andrew Spencer

    Stu…your last point on contributing “in kind” is pretty smart…I never thought of that

  18. 18. Clare

    @SST- Yes you’re right :) I try my best to be knowledgeable but sometimes its difficult to keep track with information. At the time of writing the article, I did not know that the government increased the TFSA contribution room to $5500.

    @Goldberg @Sean Cooper @SST
    I recall the Harper government talking about the $10K TFSA limit as well. With most people not even able to contribute $5500, I doubt that the $10K limit will actually happen…agree about not trusting politicians!

    @Andrew @pds
    Thanks for your kind comments! I try :)

    @Stu L
    Great tip thanks!! I hold mostly dividend stocks in my TFSA as well.

  19. 19. Ed Rempel

    Hi Stu,

    The one issue with contributing your investments “in kind” to your TFSA is that if it has gained, the gain is triggered and is immediately taxable. However, if it has declined, your loss is denied.

    You cannot claim a capital loss on an “in kind” contribution.

    Ed

  20. 20. Carole young Gair

    Can anyone clarify minimum age that person must be to contribute to TFSA. 18 yr can open but must be legal age 19 to add funds??

    And is it in the year you turn 18/19 or after birthday?

  21. 21. SST

    TFSA contribution commences the second you turn 18 years of age.

    It’s a garbagey way to run things. A Canadian citizen should be allowed to open and contribute to a TFSA the second they start paying taxes on income. If I’m 15 and working at Mickey D’s, why is it logical to ban me from this tax haven account for three years?

    As the rule of thumb goes: contribute to an RRSP before a TFSA if you expect to be taxed at a lower rate after retirement.

    Hmmm…can’t get much lower than minimum wage…so it’s more detrimental than beneficial for a pre-18er to put money into an RRSP…but they can’t contribute to a TFSA…

    I can get a drivers license at 16 yet can’t open a savings account?!

    Oh, government…

  22. 22. CaroleYoung Gair

    According to cra and Money Smart sites this is the rule for age to contribute to a TFSA…………….
    Given that this is Canada, the answer is not as straight forward as you might think. Basically, you have to reach the age of majority in order to enter into a financial contract, which is what happens when you open a TFSA.

    The problem is that the age of majority is determined by each province and territory, and they are not synchronized.

    First, let’s cover two quick TFSA rules:

    $5,000 of TFSA contribution room is accrued each year starting when you turn 18 years of age or 2009, whichever is later.
    You need to be a Canadian resident to open up a TFSA account. Here is a link to the official Canadian resident definition.
    At what age can someone open a TFSA (Tax Free Savings Account) in Canada

    Some provinces allow 18 year olds to open a TFSA account, but in other provinces you must wait until you are 19 years of age.

    Here are the provinces that allow 18 year olds to open a TFSA account:

    Ontario
    Quebec
    Alberta
    Manitoba
    Saskatchewan
    Prince Edward Island

    Here are the provinces/territories that only allow 19 year olds to open a TFSA account:

    British Columbia
    New Brunswick
    Newfoundland and Labrador
    Northwest Territories
    Nova Scotia
    Nunavut
    Yukon

  23. 23. SST

    re: Here are the provinces/territories that only allow 19 year olds to open a TFSA account: BC, New Brunswick, Newfoundland/Labrador, NWT, Nova Scotia, Nunavut, Yukon.”

    I can vote but I can’t open a savings account?!?

    Absurd.

    Any employed 15-year old should be lobbying their local gov’t representative to get this sham of a rule changed, lest the vote when they turn 18 is cast for the opposing party.

  24. 24. B Scott

    If I contributed to TFSAs from 2009 ($25500) and accumulated $28300 and withdrew it in Nov 2013, In addition to the $5500 for 2014 how much can I recontribute from the previous withdrawl There is some confusion over the income in TFSA ($288) can be recontributed?

  25. @B Scott, the general understanding is that in 2014, you can deposit your 2013 withdrawal + $5500.

  26. 26. James

    In an earlier post I seen a reply saying “@ Jim. That is wrong. You have $20,000, unless you are below 21 yrs old.”

    I’m well over 18 & moved to Canada in 2011, at that time I received my SIN. So does the same rule apply to me in regards to depositing 20k? Or is my TFSA based on when I got my SIN or when I opened my TFSA account?

  27. 27. Carole young Gair

    James, read…must be a Canadian resident to apply..therefore if you moved here in 2011..that would be your first year of residency and then after you opened TFSA …if same year then eligible to contribute for 2011/12/13/14

  28. 28. Jason

    I contributed $5000 to my TFSA the second year. I used it for high risk investments such as options. They all expired worthless and I loss the entire balance.

    What happens now? I didn’t withdraw any of the money. I have 0 in any TFSA does this mean I start from scratch. Can I contribute the max of $31000 this year?

  29. @Jason, unfortunately, once you contributed $5k into your account, it counts towards your contribution maximum. Providing that you haven’t contributed anything since then, you can now contribute $26,000.

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