TFSA Basics - Contribution Limits and Rules

The TFSA (Tax Free Savings Account) is a relatively new addition to the stable of tax advantaged accounts offered by the Canada Revenue Agency. Introduced in 2009, the TFSA allows canadians 18 or older with a valid Social Insurance Number to save and invest money that will grow tax free and then be free of any income related taxes when withdrawn. Basically, there's no tax due when your investments make money and there's no tax due when you cash in those investments. There is a limit to the amount of money that Canadians can deposit into a TFSA each year and also some rules surrounding the types of investments that can be made within a TFSA. Check out the rest of this article for this information.

TFSA Contribution Limits

Each year the Canada Revenue Agency releases a contribution limit that applies to all Canadians aged 18 and over that hold a valid Social Insurance Number. Unlike with an RRSP, the amount of money that you can deposit into a TFSA is not affected at all by your income. The limit is exactly the same for everybody. The contribution limit is also cumulative. For example, if you were eligible to open a Tax Free Savings Account before 2009, but have not yet done so, you would be eligible to contribute the maximum for each year that you missed out on. The total contribution limit for someone in this situation would be $46,500. If you became eligible for an account in 2013, your total contribution limit would now be $26,500. Below is a list of all the historic Tax Free Savings Account Contribution Limits as well as the current limit for 2016. If you would like some more information on the dramatic limit change made in 2015/2016, please see this article from the Globe and Mail.


TFSA Approved Investments

The investments that are allowed to be placed inside of a TFSA are exactly the same as those allowed inside of an RRSP. They include the following: Savings Accounts, Guaranteed Investment Certificates, Bonds, Mortgage Loan, Income Trusts, Mutual Funds, Labour Sponsored Funds, Corporate Shares, Foreign Currency.

TFSA Account Eligibility

In order to become eligible for a Tax Free Savings Account, you must be a Canadian resident of at least 18 years of age and you must have a Social Insurance Number. The Canadian residency status is an eligibility requirement that is often overlooked. For example, many people will claim non-residency when they are out of the country for an extended period of time. If you continue to contribute to your TFSA during a time of non-residency, you will be taxed 1% per month on the money you contributed until it is withdrawn.