The contribution of the financial year 2023 of a tax-free savings account in Canada is CAD $6,500 per annum. Let’s discuss in details about the TFSA Contribution limits.
Tax Free Savings Account (TFSA)
TFSA, Canada is a massive tax saving option. Hence any government would put limits on the amount introduced into the TFSA every year. If not, every citizen would contribute all that they earn into a TFSA and evade paying taxes on its return. This will turn out to be a huge loss for the government, as taxation is the main source of income of any government.
Contribution history of TFSA in Canada
We have listed the journey of TFSA contribution limits, since its inception in the year 2009.
- 2009 to 2012: $5,000 per annum
- 2013 to 2014: $5,500 per annum
- 2015: $10,000 per annum
- 2016 to 2018: $5,500 per annum
- 2019 to 2022: $6,000 per annum
- 2023: $6,500 per annum
The Contribution limits are generally raised by inflation rates, mostly rounding off to the nearest 500s. However, it was nearly doubled in the year 2015. This was reported to be bashed as an election goodie and the experts estimated a loss of $85 million dollars in the year 2015.
Hence, it was restored to $5,500 in the year 2016 and the same limit continued for the next two years until 2018.
Catch up contributions within TFSA, Canada
For example, John turned 18 in the year 2009 and he hasn’t contributed even a penny into his TFSA. He can catch up for all the lost contributions and invest $88,000 in his TFSA in the financial year 2023.
Contribution room for the current financial year is calculated using the formula below:
Contribution room = Unused contribution limit from previous years, starting 2009 + current year contribution limit + withdrawals from previous years.
Here, we note that the withdrawals made can also be added back. However, please note that withdrawals made in one financial year cannot be put back into the TFSA in the same year. One has to wait until the next financial year to put the money back into TFSA.
TFSA, Canada and its Contribution Limit
Given the strict contribution limits of TFSA, Canada, it is important that you check your contribution room statement, before introducing any new money into your account.
You can easily find out the contribution room available within your TFSA. You can seek this from the financial institution you have an account with, Canada Revenue Agency, or ring the Tax information services.
Have you reached your TFSA Contribution Limit this year or still looking forward to contribute? Feel free to share any queries or feedback.