Last updated: Jan. 5, 2022
We’re nearing the end of 2021 and it’s a good time to think about building up your tax-free savings account (TFSA). If you haven’t already opened an account, you may want to consider starting one.
We’ve covered the TFSA rules and how you can take advantage of this investment option in previous blog posts but let’s review them again here.
What is a TFSA and how does it work?
A TFSA is a registered investment or savings account that lets you set money aside, tax-free throughout your lifetime.
The TFSA program, started in 2009, is available to any resident of Canada, 18 years of age or older with a valid social insurance number.
TFSAs do not provide an immediate tax-deduction, as an RRSP does, and the money you contribute to your TFSA account is already taxed. However, when you choose to withdraw funds, for any reason, they will not be taxed.
The primary benefit of a TFSA is that your contributions will grow tax-free throughout your lifetime. Interest, dividends, and capital gains earned through your TFSA investments can be withdrawn tax-free.
Additionally, any government benefits you may be entitled to (Old Age Security, Employment Insurance or Guaranteed Income Supplements) will not be reduced or affected by the income you earn or the amount you withdraw from your TFSA.
A TFSA can hold any combination of investments – cash, Guaranteed Investment Certificates (GICs), mutual funds. The financial institution you choose for your account will provide specific details on how your TFSA contributions will be invested.
What is the TFSA limit in 2022?
The amount of money you contribute to your TFSA is limited to a maximum every year but there is a total lifetime, cumulative limit that you should be aware of (see chart below).
The annual TFSA limit for 2022 is $6,000, which hasn’t changed since 2019.
This means you can contribute up to $6,000 to your TFSA this year but since there is a lifetime contribution limit, you may be able to contribute more through unused room from previous years.
You can open any number of TFSAs, but your individual maximum limit applies, no matter how many accounts you have.
How much can I contribute to my TFSA?
You will accumulate TFSA contribution room each year (from 2009) even if you do not file an income tax return or open a TFSA.
If you’ve never opened a TFSA before, you can make a considerable contribution in 2022 – $81,500 total (provided you were at least 18 years old in 2009).
Your total contribution is calculated as follows:
- Your annual TFSA dollar limit (for 2022 this is $6,000)
- Plus any unused TFSA contribution room since 2009
- Plus any withdrawals made in the previous year
You can also withdraw from your TFSA at any time, and withdrawals free up more contribution room for you in the future.
Below is a chart listing the annual and cumulative limits since the program began and an example of how withdrawals from your TFSA are accounted for:
EXAMPLE: If you turned 18 before 2009
- If you’ve not contributed to a TFSA at all, using the table below, your maximum contribution in 2022 would be $81,500
- However, if you already have $12,000 in a TFSA, your maximum contribution in 2022 would be $69,500
- And if you withdrew $5,000 from your TFSA in 2021, your contribution limit for 2022 would be $74,500. Here’s how:
Where can I find my TFSA contribution room?
You can check your TFSA contribution room through CRA MyAccount for Individuals or call the Tax Information Phone Service (TIPS) at 1-800-267-6999.
If you are looking for a TFSA Room Statement, you can request one from the CRA.
Tip: Keep records of your transactions to make sure that you do not go over your TFSA contribution room. The CRA will keep track of and determine your available TFSA contribution room based on information provided annually by the TFSA issuers. You should compare the transaction information the CRA has with your own records to make sure the information is accurate and complete.
When can I contribute to my TFSA?
There is technically no deadline, as there is with an RRSP, but limits and withdrawals are calculated based on the calendar year.
Can I contribute to my spouse’s TFSA?
You are only allowed to contribute to your own TFSA account, but you can give money to your spouse or common-law partner to contribute to their own. This will not impact your individual limit and unlike an RRSP, income attribution rules do not apply.
Income earned through your spouse’s TFSA account will belong to them.
What happens if I over-contribute to my TFSA?
Transactions, including withdrawals, are tracked as they are made. If at any point in a month you have an excess amount in your TFSA, you will be subject to a tax of 1% on the excess for each month it remains in the account.
Carefully review your TFSA contribution limits before you contribute and remember that you cannot add back withdrawals in the same year as you made them. You must wait until the next year to add the amount back to your total contribution amount.
Can I transfer funds between TFSAs?
If you want to transfer funds between TFSA accounts, be sure to ask your financial institution to complete a direct transfer on your behalf.
If you withdraw the funds yourself and contribute those same funds to another account, they will be treated as a regular contribution and therefore reduce your contribution room for the year.
If this movement of funds takes you over your contribution limit for the year, the excess amount will be subject to a 1% tax for each month that you are over your limit.
What’s the difference between a TFSA and an RRSP?
To understand the difference between TFSAs and RRSPs, read our blog: Should I use an RRSP or TFSA as a business owner?
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