sponsored
MCAN Wealth 1 year unregistered GIC
- Interest rate: 4.05%
- Minimum amount: $1,000
- Eligible for CDIC coverage: Yes
Is a TFSA really tax-free?
TFSA contributions will not reduce your taxable income and result in a tax refund, unlike registered retirement savings plan (RRSP) contributions. However, where you save on taxes with a TFSA is that the returns you earn within your TFSA are not taxed. That means that income from things like interest, dividends or capital gains is not subject to income tax. Any money earned in the account—even when withdrawn—is generally tax-free. We say “generally” because foreign profits, for example, may be subject to withholding tax, but dividends do not go on your tax return. (Not sure where to invest? Read TFSA vs RRSP: How to decide between the two.)
How does the TFSA contribution room work?
Your TFSA contribution room is the maximum amount you can contribute to your TFSA in any given year. Your contribution room and your age affect the amount of contribution room you have. Unlike your RRSP contribution room, the contribution limit is not dependent on your income. You start accumulating TFSA room from the year you turn 18 (provided you’re a Canadian citizen), even if you didn’t file an income tax return that year or still have a TFSA.
Your contribution room is the sum of the following:
- TFSA dollar limit for current year
- Any donation room left over from years ago
- Any withdrawals made from your TFSA in the previous year
The TFSA contribution limit for 2025 is $7,000. If you turned 18 before 2009 and never contributed, your maximum lifetime TFSA contribution limit is $102,000 as of January 1, 2025. If you withdraw money from your TFSA, you get that room again on January 1 of the following year . Don’t just go over your limit or make the mistake of thinking you’re getting your TFSA room for immediate withdrawals.
Annual TFSA contribution limits
Below, you’ll find the annual contribution limit for each year since the TFSA’s inception in 2009. Each year, the new annual limit is indexed to inflation and rounded to the nearest $500. There are exceptions: in 2015, the limit increased from $5,500 to $10,000; it is reduced to $5,500 again the following year.
| A year | TFSA annual limit | TFSA cumulative limit |
|---|---|---|
| 2009 | $5,000 | $5,000 |
| 2010 | $5,000 | $10,000 |
| 2011 | $5,000 | $15,000 |
| 2012 | $5,000 | $20,000 |
| 2013 | $5,500 | $25,500 |
| 2014 | $5,500 | $31,000 |
| 2015 | $10,000 | $41,000 |
| 2016 | $5,500 | $46,500 |
| 2017 | $5,500 | $52,000 |
| 2018 | $5,500 | $57,500 |
| 2019 | $6,000 | $63,500 |
| 2020 | $6,000 | $69,500 |
| 2021 | $6,000 | $75,500 |
| 2022 | $6,000 | $81,500 |
| 2023 | $6,500 | $88,000 |
| 2024 | $7,000 | $95,000 |
| 2025 | $7,000 | $102,000 |
What happens if you contribute too much to your TFSA?
If you exceed your contribution limit, you will be subject to a penalty tax of 1% per month. Fortunately, this 1% tax only applies to the overcontributed amount, not the entire account balance.
What can you hold in a TFSA?
Eligible investments for TFSAs include:
- Money (money): This includes real cash, and money market mutual funds. Only government-issued currency is eligible, meaning cryptocurrency is not a registered investment.
- Guaranteed investment certificates (GICs): GICs pay guaranteed interest rates for a specified period. You can buy a GIC with cash inside your TFSA.
- Mutual Funds: A mutual fund pools investments from many investors to buy a basket of assets, usually stocks or bonds. Mutual funds can be actively or passively managed, and their costs vary accordingly.
- Exchange traded funds (ETFs): ETFs track, or mimic, various stock indexes, and their units are traded on stock exchanges. You can choose from active and passively managed ETFs, both of which are eligible for registration.
- Bonds (both corporate and government): Investors can buy individual bonds in a registered account, although it is more common to hold bonds through a mutual fund or ETF.
- Stocks (also called equities or securities) listed on a designated exchange: This usually includes stocks on the Toronto Stock Exchange, the New York Stock Exchange or the NASDAQ exchange. There are other North American stocks, however, and technically any stock that trades on a recognized stock exchange is eligible. Foreign, non-North American securities are often purchased by purchasing American Depositary Receipts (ADRs) on US exchanges.
Read more about GICs as a good investment:
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