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New TFSA Contribution Limit for 2015

This may be old news for those who follow Federal politics, but the Harper government has come through on their promise to raise the Tax Free Savings Account (TFSA) contribution limit.

I consider the TFSA to be an extremely powerful tool for investors, perhaps even more so than an RRSP.  All investment gains within the account are not subject to tax and withdrawals from the TFSA do not affect the eligibility for seniors benefits.  If you have a large RRSP when you retire, withdrawals are taxable and count as income against seniors benefits.  This basically results in an additional tax on seniors.  For more information, check out this article on seniors clawbacks.

The TFSA started in 2009 with a $5,000 contribution limit, then raised to $5,500 in 2013, and now raised to $10,000 in 2015. If you are just starting your TFSA in 2015, a Canadian resident since 2009, and over 18 since 2009, you can contribute up to $41,000. If you are just turning age 18 in 2015 (or 19 depending on the province), then you can contribute the 2015 amount, which is $10,000.

Here are the contribution limits by year:

  • 2009-2012: $5,000;
  • 2013-2014: $5,500; and,
  • 2015: $10,000 (no longer indexed to inflation).

If you are a seasoned investor and already contributed $5,500 in 2015, you may be wondering if you can contribute the additional $4,500 this year.  CRA has confirmed that they will honor the new budget and allow the increased contribution amount in 2015.  In light of this, I have already moved $4,500 into both mine and my wife’s account.

What You Can Hold in a Tax Free Savings Account

Although the awareness is increasing that the Tax Free Savings Account doesn’t necessarily have to be a savings account, many Canadians are still using the Tax Free Savings Account as a savings account.  The types of investments that can be included in a Tax Free Savings Account include:

  • Cash (e.g. savings account)
  • Mutual funds
  • Bonds
  • Guaranteed Income Certificates
  • Equities (stocks, exchange traded funds, etc.)

From a tax perspective, I like to look at all my accounts as one big portfolio.  For maximum tax efficiency, here are some ideas on which accounts to place your investments for maximum tax efficiency.

If you are an ETF investor, here are some ideas on simple ETF portfolios.

Where Can you Open a TFSA?

Many financial institutions offer TFSAs, but if you are a self-directed investor, you will want to open an account with a discount brokerage.  I have put together a comparison of popular discount brokers in Canada.  I like Questrade for beginners due to their low fees, ability to purchase ETFs without a trading commission, and ability to cheaply exchange USD within their accounts.

Final Thoughts

If you have the cash available, go ahead and take advantage of the new $10,000 TFSA contribution limit for 2015.  Remember that it does not have to come from cash on hand, if you have non-registered investments, you can sell (or transfer in-kind) and deposit the cash proceeds (but note the tax consequences on capital gains). Remember though, if you transfer in-kind at a loss, you cannot take advantage of the capital loss tax deduction. If that is the case, then it’s best to sell at a loss, and contribute the cash.

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 10 comments… add one }
  • Leslie May 11, 2015, 9:56 am

    “Remember that it does not have to come from cash on hand, if you have non-registered investments, you can sell and transfer the cash proceeds (but note the tax consequences on capital gains).”

    You might have mentioned as well the ability to make contributions in kind.

  • Tawcan May 11, 2015, 10:34 pm

    I’m loving the limit increase. TFSA will soon becoming the retirement saving vehicle for a lot of Canadians.

  • jOHN May 11, 2015, 11:39 pm

    If one has started on Jan. 1st, 2015, by contributing 5500$, then withdrew a few amounts (dividends) and then contributed another 4500$ by the end of 2015, does one get penalized like in the past?

    • FT FrugalTrader May 12, 2015, 7:40 am

      John, my understanding is that you have a full $10,000 available to contribute this year. Providing that you stay under that, you should be ok. Any withdrawals can be redeposited the following year.

      • John May 15, 2015, 9:34 am

        I feel paralized with incertitude :) I have 5K in a savings account, and I want to TFSA it.

        I remember when TFSA holders were penalized when , as an example, they contributed 5K (the limit at the time) in January, and then pulled out (200$), and then recontributed 200$ in the same.

        Thats whats preventing me from contributing another 5K this year.

  • a.z. May 12, 2015, 12:54 pm

    In the CRA link posted, it states “Under proposed legislation, the annual TFSA dollar limit for 2015 is increasing from $5,500 to $10,000. The proposed measure increasing this limit is subject to parliamentary approval. ”

    This makes it sound like the increase is still subject to approval… what is your take on that wording?

    • FT FrugalTrader May 12, 2015, 1:43 pm

      @a.z, that is true, it has not been approved yet, but CRA has allowed financial institutions to allow existing and new account holders to contribute up to the maximum. Basically, there is a chance that parliament (or new gov) will deny the boost but if that does happen, I suspect that CRA will forgive the over contribution for 2015.

  • Garth May 14, 2015, 7:56 pm

    Almost no one is talking about it, but it is probably more accurate to call this a temporary increase due to the end of indexing. In “real” terms the limit will gradually deflate away, (as long as inflation continues). Kinda sneaky of them I think. Also note that unused contribution room loses value over time due to the Time Value of Money. Use it or slowly lose it!

  • FT FrugalTrader May 15, 2015, 2:47 pm

    True, it will no longer be adjusted to inflation. However, it would take 20 years for the $5500 limit to reach $10k based on 3% inflation. I’ll take $10k today thanks!

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