Q:

What are the rules for making TFSA contributions?

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Quick Answer

Contributions to a TFSA are limited to the maximum annual amount permitted by an individual's TFSA contribution room. This maximum contribution limit, or contribution room, increases annually for all Canadian citizens aged 18 or over, providing they have a valid Canadian social insurance number and Canadian residency, and regardless of whether they file income tax or benefit returns or whether they open a TFSA, according to the Canada Revenue Agency. Contributions to replace withdrawals within the same year are deducted from the contribution room limit in the same way as other contributions.

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Full Answer

However, qualifying transfers, exempt contributions and specified distributions are not counted against the contribution room.

The contribution room is determined based on unused contribution room, as well as withdrawals, from the previous year. Contribution room is also subject to the TFSA dollar limit for the year. As of 2015, this was $10,000, notes the Canada Revenue Agency. Even if an individual has more than one TFSA, his total contributions are still limited to a single maximum contribution room.

If contributions are in excess of the contribution room, individuals are taxed at a rate of 1 percent per month of the highest amount of excess TFSA for that month.

Information on personal contribution room is available from MyCRA and the Tax Information Phone Service.

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