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Tax-Free Savings Account Limit and Withdrawal Rules

Updated: Jan 13


Happy tax payer saving bundles of cash using a TFSA


Tax-Free Savings Account (TFSA)-Limit and Withdrawals

This article covers everything you need to know about what is a Tax Free Savings Account? And how does a TFSA work? A detailed explanation of rules for contribution limits and implications of withdrawals


What is a TFSA and how does it work?

Tax Free Savings Account's were introduced in the 2009 Federal Government Budget. TFSA's are a tax exempt investment and saving account designed to encourage you to save and invest more money to fund a major purchase or add to your retirement income. TFSA's allow you contribute, invest and withdraw completely TAX FREE within rules set out by the Federal Government


You can take all of your money out and pay zero income tax any time or when you retire! TFSA's really got going on January 2009. Often misunderstood as just for savings with low interest returns. Tax Free Savings Accounts really are best used to save and invest in your higher growth parts of your portfolio. Very useful to accumulate significant wealth while working. Should be one of the cornerstones of your retirement plan either short term or long term


Most financial institutions offer low interest savings rate TFSA's providing 4% to 4.5% interest. We prefer to invest then generate 8% to 12% returns from more aggressive investments


TFSAs are probably the last amazing gift the federal government will give us. They are always short of cash and looking for ways to put their hand in our back pockets. Many financial institutions encourage you to use these accounts to hold interest based savings investments such as cash, high yield savings and GIC’s. Everyone in your local bank branch has a sales quota. Don’t be enticed by that nice smiling face encouraging you to misuse the greatest gift the federal government have ever given savers; to put your low interest cash savings in a TFSA. If you understand these basics of TFSA’s then you can come out ahead. I’ve seen folks with $459,000 in their TFSA’s – they used them for aggressive high risk investments. TFSA’s are best used for longer term investments.


Who can open a TFSA?

  1. You have to turn 18 before you can open a TFSA

  2. Any Canadian resident 18 or older with a social insurance number (SIN) can open a TFSA

  3. Non residents of Canada with a SIN. Contributions made while not in Canada are subject to the 1% tax per month.


How to Open a TFSA?

  1. Contact your financial institution, insurance company, credit union or bank

  2. Give your SIN, personal details name address and date of birth so they can register you and your account with the CRA

  3. You can open 3 main types of TFSA's: trust, deposit, ort an annuity

  4. You have the option of opening a self directed TFSA where you direct and manage the holding in your account

  5. Your institution will give you your TFSA registration number.


Limit and Withdrawal rules for Tax-Free Savings Accounts

You can contribute up to your available contribution limits.


What is the TFSA contribution limit for 2024?

  • The cumulative 2023 Tax-Free Account contribution limit is $88,000

  • The TFSA contribution amount for 2024 is $7,000

  • Maximum 2024 TFSA contribution amount is $95,000


What can I invest in a Tax-Free Savings Account?

You can hold most types of investments in a TFSA. You can hold Mortgages, Debts, Stocks, Bonds, Canada Savings Bonds, Mutual Funds, Gold and Silver, some types of Options, Segregated funds, Cash, GIF’s Guaranteed Income Funds, and Exchange Traded Funds (ETF’s), bankers acceptance, foreign exchange contracts, REITS Real Estate Investment Trusts, Royalty Trusts. limited partnership units, put and call options and warrants are allowed.


What investments are prohibited or non-qualified?

  • Your personal debts

  • Non arms length mortgages, debts or securities

  • Futures contracts, or derivative instruments where your losses may exceed the capital deposit amount do not qualify



Can I earn interest in a Tax-Free Savings Account?

You can earn short term interest in a TFSA. Interest income is also tax free. TFSA's are a good place to park interest accumulating cash for the shorter term. Personally I would use the TFSA for other investments that produce higher growth and income over the longer term time.


How many Tax-Free Savings Accounts can I have?

You can have several TFSA's as long as the total contributions don't exceed your personal contribution limits


Can I transfer money between Tax-Free Savings Accounts?

Yes you can complete an instruction or intercompany transfer form to move your money or investment between accounts, banks or insurance companies. Transfers are not taxable.


How much can I put in my TFSA if I have never contributed?

Contribution room accumulates every year even if you have not opened an account. The 2024 cumulative contribution room is $95,000 provided you were 18 years old the year they were started.


How much can you have in a TFSA?

Theoretically there is no limit on how much you can grow your TFSA. However, Canada Revenue Agency will investigate you if you grow your $95,000 into millions. CRA investigated some day traders operating a business within the confines of a TFSA and decided to apply taxes as they were deemed to be abusing the intention of the accounts. We advise you to be judicious if you have significant investment growth strategies in your TFSA. Its about using good judgement when using a TFSA.


Tax-Free Savings Account Contribution Rules

Your individual life time tax free savings account contribution room accumulates and is carried over even if you do not open a TFSA, or file an income tax and benefit return. As of 2024 you can contribute a maximum of $95,000


The following TFSA contribution amounts were approved by our government since they were fist started in 2009 up to 2024:


How much money can I put into a tax-free savings account? Maximum Tax-Free Savings Account Contribution Rules

TFSA Contribution Amounts from 2009 to 2024

  1. January 1st 2024 = $7,000

  2. January 1st 2023 = $6,500

  3. January 1st 2022 = $6,000

  4. January 1st 2021 = $6,000

  5. January 1st 2020 = $6,000

  6. January 1st 2019 = $6,000

  7. Januart 1st 2018 = $5,500

  8. January 1st 2017 = $5,500

  9. January 1st 2016 = $5,500

  10. January 1st 2015 = $10,000

  11. January 1st 2014 = $5,000

  12. January 1st 2013 = $5,500

  13. January 1st 2012 = $5,000

  14. January 1st 2011 = $5,000

  15. January 1st 2010 = $5,000

  16. January 1st 2009 = $5,000

  17. January 1st 2008 = $5,000



Tax Free Savings Account Withdrawal Rules

  1. All Interest Income, Dividends and Capital Gains are not taxable within a TFSA

  2. Capital losses are not deductible within a TFSA

  3. All TFSA withdrawals are 100% tax free. However savings or investments may have a withdrawal of transaction fee. If you have the time to wait, withdraw at year end so you can recontribute in the next tax year

  4. No tax reporting is required during the year you make of withdrawal

  5. Do not re contribute the same year you make a withdrawal or you pay 1% per month interest penalties. CRA makes this a cumulative contribution by adding the recontribution amounts to your net annual contributions.

  6. Penalties for over contribution amounts are taxed at the rate of 1% per month

  7. Capital gains from growth in a TFSA are not taxed by CRA each tax year outside your TFSA.

  8. Capital losses realized from a TFSA contribution are not allowable as a deduction by CRA outside your TFSA each year

  9. Interest on money borrowed to contribute then invest in a TFSA is not tax deductible.

  10. You can take any amount out of your TFSA. Then re contribute next calendar year the amount you withdrew + the new year’s contribution $ amount. If you accumulate $250,000 in your TFSA you can withdraw $250,000. This increases your contribution room to $250,000 + the new years contribution of $7.000

  11. Allowing you to contribute $250,000 + $7000 = $257,000 for 2024

  12. All TFSA withdrawals are reported annually by your financial institution or bank to CRA who then adds this to your contribution room tracked online by our government


Creative Tax Free Savings Account Strategies

Here are some creative ways to use TFSA's to maximize your personal benefits

  1. Since TFSA contributions are in after tax dollars its best to use these for saving and investing.

  2. If you can contribute $583.33 per month, $7,000 per year or use the $95,000 life time contribution to use up all of your contribution room

  3. It’s always best to leave your TFSA to your spouse or partner as a successor holder or beneficiary depending in which province you live in (the full $ amount + gains from time of death roll over to your spouse’s TFSA account completely tax free) Your spouse becomes the TFSA account holder, bypasses probate tax and bypassing your estate

  4. Beneficiaries and estates receive the full $ amount tax free but pay tax on any gains from the time of death to disposition. In some provinces if the amount is over $50,000 you may be subject to probate

  5. Unless your employer has an RRSP matching contribution plan-it’s worth contributing to your TFSA first

  6. Hold dividend and income producing investments not cash generating interest in your TFSA to maximize your benefits

  7. You can always withdraw from your TFSA to contribute to an RRSP. Then re contribute your tax refund in the following calendar year to your TFSA instead of blowing it on a trip or stuff

  8. You should borrow to contribute to your TFSA if you can generate returns greater that 8%. Interest is not tax deductible.

  9. Although you can borrow money to invest in an open investment account. Interest on these loans is tax deductible. Withdraw a portion of the non-registered cash balance. Then make a contribution to your TFSA using the non loan portion of any assets you have your investments. Often referred to as a TFSA carousel strategy allows you to make the interest of borrowing to invest in a TFSA tax deductible. Use your own personal line of credit works the best for this type of investing strategy

  10. Consider using your TFSA to generate tax free income and use a a flow through arrangement. There are ways to flow income through TFSA's that don't require any income tax. TFSA withdrawals for income are not taxed.

  11. TFSA's are fantastic for long term investing then drawing retirement income or making a major purchase

  12. Make regular withdrawals of income or capital gains growth to triple or quadruple your contribution room

  13. Make regular contributions or re contribute

  14. Minimize your use for day trading or running an options business to accumulate millions. CRA will tax you as a business

  15. Maximize TFSA contributions for both you and your partner. Take advantage of the $95,000 contribution for both of you to accumulate up to $190,000 for long term growth saving and investing

  16. Take advantage of segregated funds that have an insured investment capital guarantee to secure growth in your investments. Yes the fees are higher but you are paying for an insured investment

  17. For most people its worth using up your TFSA contribution room first. You can always make a withdrawal to contribute to your RRSP



What Happens when the TFSA account Owner Dies?

Depending on the provincial residency at the time the TFSA owner dies, the value of cash or investments passes to either the estate, beneficiary or successor holder completely tax free. Any income or capital gains after the date of death is taxed. Beneficiaries or successor holder can contribute amounts to their own TFSA's depending on available contribution room


What happens to my TFSA if I Divorce or Separate?

You can transfer an amount from your TFSA to your partner without impacting either persons contribution room limits. Transfers must be completed by the issuing institution. Its important that you get the institutions to prepare the transfer paperwork to ensure your transfer meets the requirements to become a qualifying


When the following is int place you get a Qualifying Transfer:


  • You were living separately at the time of transfer

  • There is a written separation agreement court order, decree and separation amount agreed


The transfer amount will not reduce your contribution room since this transfer is not added back to the transferers contribution limit. OR deducted from the recipients contribution room limits at the time of transfer. Qualifying transfers are not included as a withdrawal or contribution




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