Tax-free savings account (TFSA) contribution rulesIncome
Tax Act s. 207.01(1)The basic rules relating to tax-free savings account include the following:Contributions can be made by Canadian residents aged 18 or over at the time of the contribution.Up to $5,000 per year ($5,500 for 2013) can be contributed, with unused contribution room being carried forward.The annual contribution limit is indexed to inflation in $500 increments (i.e., to the nearest $500), in the same manner as personal tax credits and tax brackets are indexed. The 2013 TFSA limit is $5,500. The Department of Finance announced this in a news release on November 26, 2012.There is no lifetime limit to the amount of contributions.If a person has contribution room, but no funds to contribute, they may contribute funds given to them by their spouse or common-law partner, with no attribution of income to the spouse.Contributions can consist of in kind contributions of qualified investments. At the time the investments are contributed, there is a deemed disposition. Any resulting capital gain will be taxablecapital loss cannot be claimed - see our article Transfer shares to a registered account, but not at a loss!The easiest way to establish a record of your TFSA contribution room is to file a tax return annually, even if you have no taxable income. Your TFSA contribution room can then be seen through Canada Revenue Agency's My Account or Quick Access e-services, or you can phone CRA to get the balance. However, the amount reported will only be correct as of January 1st of each year, after financial institutions have reported all TFSA transactions for the prior year, which may not be until the end of March. Thus, it's important to track this yourself. The history of annual limits for each year is shown in this table: The first year that contributions could be made was 2009.YearsTFSA Annual
Total2009-2012$5,000$20,00020135,50025,500CRA says that Individuals who have not filed returns for prior years (because, for example, there was no tax payable) would be permitted to establish their entitlement to contribution room by filing a return for those years or by other means acceptable to the CRA.The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month. This means there will be a tax payable even if the excess amount is withdrawn in the same month in which it is contributed.There is no deadline for contributions to a TFSA, as the unused contribution room is carried forward into the next year. However, a withdrawal in any year does not increase the TFSA room until the following calendar year. Thus, if you are thinking of making a withdrawal close to year end, make sure it is done by December 31st, in order to have the withdrawal amount added back to the TFSA room sooner.Tax Tip: If you have a loss on your investment, don't transfer it to your TFSA.