How to Maximize Your Tax-Free Savings Account (TFSA): 7 Strategies to Implement Before Year-End 2025

The 2025 taxation year is nearly over, and it’s time to leverage year-end tax-planning strategies that help you maximize the tax benefits of your Tax-Free Savings Account (TFSA).

Introduced in 2009, a TFSA allows Canadian individuals to earn investment income and capital gains tax-free. You cannot claim a deduction for your TFSA contributions, but your earnings within the TFSA accumulate tax-free. Furthermore, you pay no tax when you withdraw the original contribution or the profits that you have accrued within your TFSA. In other words, as the name suggests, a Tax-Free Savings Account essentially allows you to grow your after-tax savings (as contrasted with the pre-tax savings in an RRSP) on a tax-free basis.

There is no maximum age limit for contributing to a TFSA. As long as you are a Canadian resident, have reached the age of majority (18 or 19, depending on your province), and possess a valid Social Insurance Number (SIN), you may continue contributing indefinitely. This makes the TFSA a flexible savings option for Canadians of all ages who wish to keep growing their investments tax-free and maintain control over their financial planning in the long term.

As of 2025, the annual contribution limit for a TFSA is $7,000. In this sense, this article lists the top year-end TFSA tax-planning tips from our expert Canadian tax lawyers.

1. Maximize Your 2025 TFSA Limit and Build a Smart Contribution Strategy for the Year Ahead

If you haven’t already, you should maximize your 2025 TFSA contribution room. Your 2025 TFSA dollar limit is $7,000. Your overall TFSA contribution room may be even greater if you didn’t max out your TFSA in previous years or if you withdrew funds from your TFSA in previous years.

Your 2025 TFSA contribution room is the total of the following three amounts: (1) your $7,000 TFSA dollar limit for 2025, (2) the amount of any withdrawals from your TFSA during the 2024 year, and (3) your unused TFSA contribution room from previous years.

The TFSA dollar limit for 2026 will also be $7,000. Thus, to amplify the tax savings on your investments, create a roadmap of your 2026 TFSA contributions by dividing the $7,000 contribution limit by 12 and setting up automatic monthly TFSA investments in that amount.

If you have additional TFSA contribution room from prior years’ withdrawals or unused room, you should account for this additional TFSA contribution room when calculating your monthly contributions for 2026.

2. Verify the CRA’s Calculation of Your TFSA Contribution Room & Maintain Supporting Documents

You can review the Canada Revenue Agency’s (CRA) calculation of your TFSA contributions and your available TFSA contribution room through your online CRA account (i.e., your CRA MyAccount).

However, keep in mind that if you check during the first few months of the year, the CRA’s figures may not yet be accurate. This is because financial institutions generally file their TFSA information returns by the end of February, and it typically takes another couple of months for the CRA to update the newly reported TFSA data on each taxpayer’s account.

As a result, if you review your CRA MyAccount early in the year, there’s a significant chance that the CRA’s calculation of your TFSA contribution room will be incomplete or incorrect, leaving you at risk of TFSA overcontribution penalties.

During the first few months of the year, verify the accuracy of the CRA’s TFSA figures by reviewing your TFSA account statements from your financial institutions. Specifically, check whether you’ve made any TFSA contributions or withdrawals in 2024 that may not yet be reflected in the CRA’s system.

If discrepancies exist, rely on your financial institution’s statements to calculate your 2025 TFSA contribution room and plan your contributions accordingly.

Be sure to keep copies of your TFSA account statements that support your calculations. These documents may be needed if the CRA reviews your TFSA activity or issues an overcontribution assessment. For help with accurately determining your TFSA contribution limit, contact one of our Canadian tax lawyers.

By now, the CRA should have updated its calculation of your 2025 TFSA contribution room. Then, if you performed your own calculations earlier in the year, take a moment to cross-reference them with the CRA’s current figures to ensure consistency. If the CRA’s calculation still does not match the calculation based on your TFSA account statements, contact our Canadian tax lawyers to discuss your options.

3. Strategically Plan Your TFSA Withdrawals

A Tax-Free Savings Account (TFSA) allows you to earn tax-free income (i.e., dividends, interest, and capital gains) from the investments that you hold within your TFSA. You can only contribute up to a specified amount to your TFSA each year.

You can also make a tax-free withdrawal from your TFSA whenever you wish. Any amount that you withdraw from your TFSA this year is added to your contribution limit on January 1st of the following year. For example, suppose that you withdraw a total of $2,000 from your TFSA in 2025. That $2,000 withdrawal will be added to the $7,000 in TFSA contribution room that you get for the 2026 tax year. So, for 2026, you can contribute $9,000 to your TFSA without exceeding your TFSA contribution limit.

Therefore, if you plan to withdraw funds from your Tax-Free Savings Account, you should do so now. That is, you should withdraw the TFSA funds before December 31, 2025. This allows you to replace the funds on or after January 1, 2026. In contrast, if you make the TFSA withdrawal in January 2026, you will need to wait until 2027 before you can recontribute those funds.

4. Designate a “Successor Holder” for Your TFSA, in the Event of Your Death

A Tax-Free Savings Account offers numerous tax benefits, yet many Canadian taxpayers neglect to include their TFSA in their tax and estate planning. Now is the perfect time to review your estate plan, including any tax planning concerning your Tax-Free Savings Account.

When the owner of a TFSA passes away, the tax implications mainly depend on whether the owner had a surviving spouse or common-law partner who qualified as the TFSA’s “successor holder.” To qualify as the “successor holder” of a Tax-Free Savings Account, an individual must meet all the following conditions.

• The individual was the spouse or common-law partner of a TFSA holder at the time of the holder’s death;
• The deceased TFSA holder named the individual as the TFSA’s successor holder—either by the deceased’s will or by a successor-holder designation that the deceased had filed with the financial institution maintaining the TFSA; and
• The individual acquired all the deceased’s rights under the TFSA—especially the right to revoke a beneficiary of the TFSA.

When the original holder of the Tax-Free Savings Account (TFSA) dies, the successor holder essentially becomes the new account holder. Consequently, the account remains a TFSA, and the successor does not face any tax implications for inheriting the deceased’s TFSA funds or on any income generated within the TFSA after the original owner’s death.

Furthermore, the value or cost of the newly acquired Tax-Free Savings Account does not affect the successor holder’s TFSA contribution room unless the deceased overcontributed to the TFSA before their death. If the deceased overcontributed, that overcontribution amount will decrease the successor holder’s available contribution room.

If a successor holder hasn’t been appointed when the original TFSA holder passes away, the account loses its TFSA status after a one-year grace period. After that, the account is (i) deemed to dispose of its holdings at fair market value and (ii) considered an inter vivos trust for tax purposes.

To ensure your spouse qualifies as the successor holder of your TFSA, consult one of our expert Canadian tax lawyers today.

5. Confirm that your TFSA Contains only “Qualified Investments”

A TFSA holder incurs steep penalties and tax liability for holding non-qualified investments within a Tax-Free Savings Account. If the TFSA acquires a non-qualified investment or if an existing TFSA investment becomes a non-qualified investment, then the TFSA holder suffers a TFSA penalty tax equal to 50% of the fair market value of the non-qualified investment.

In addition, the TFSA holder must pay tax on any income from the non-qualified investment or any capital gain from disposing of the non-qualified investment.

Per the definition in Canada’s Income Tax Act, a “qualified investment” refers to the following:

• money, GICs, and other deposits;
• most securities listed on a designated stock exchange, such as shares of corporations, warrants and options, units of exchange-traded funds, and real estate investment trusts;
• mutual funds and segregated funds;
• Canada Savings Bonds and provincial savings bonds;
• debt obligations of a corporation listed on a designated stock exchange;
• debt obligations that have an investment-grade rating; and
• insured mortgages or hypothecs.

In short, a “qualified investment” primarily refers to money and securities listed on a designated stock exchange.

Notably, a qualified investment does not include cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, Dash, TAO, or XRP. Nor does it include non-fungible tokens (NFTs). That said, the investment market has seen a recent surge in cryptocurrency-based ETFs (or exchange-traded funds), many of which are listed on designated stock exchanges.

So, while cryptocurrencies themselves aren’t “qualified investments,” many of the publicly listed cryptocurrency-based ETFs are. In particular, the cryptocurrency-based ETF qualifies as a “qualified investment” if the fund is listed on a designated stock exchange, such as the Toronto Stock Exchange (TSX), the New York Stock Exchange (NYSE), or any other Canadian or international stock exchange that Canada’s Minister of Finance has designated for Canada’s Income Tax Act.

If you need help determining whether your TFSA holdings include non-qualified investments, schedule a consultation with our Canadian tax lawyers today. Additionally, our expert Canadian tax lawyers have helped many clients apply to undo their TFSA penalty taxes.

Subsection 207.06(2) of Canada’s Income Tax Act authorizes the Canada Revenue Agency to cancel part or all of the TFSA penalty tax resulting from holding non-qualified investments—such as cryptocurrencies, non-fungible tokens, or shares in private companies—in your Tax-Free Savings Account.

Our Canadian tax lawyers can carefully plan and efficiently prepare your subsection 207.06(2) application. A properly completed TFSA-penalty-cancellation application not only improves the chances that the CRA will grant relief but also provides a foundation for a judicial review application to the Federal Court if the CRA unfairly denies your application and refuses to cancel your TFSA penalty taxes.

6. Confirm that You Haven’t “Carried on a Business” in Your TFSA

Now is a good time to ask a Canadian tax lawyer to review your TFSA transactions and determine whether you need to report capital gain vs business income generated within your TFSA. If your Tax-Free Savings Account “carries on a business,” the resulting business income is taxable under subsection 146.2(6) of Canada’s Income Tax Act.

In other words, while you pay no tax on any interest, dividends, or capital gains that accumulate within your TFSA, you will incur tax on any business income generated inside your TFSA. The challenge is that many securities transactions blur the line between capital transactions and those resulting in business income.

A few years ago, the Canada Revenue Agency (CRA) launched an aggressive tax audit campaign targeting high-balance TFSAs, which, according to the CRA’s tax auditors, stemmed from taxpayers running a business within their TFSAs.

When auditing a TFSA, the Canada Revenue Agency applies several factors to determine whether the account is carried on a business and thereby earns taxable business income. The following factors may cause the CRA to conclude that your TFSA is carried on a business:

• you conduct frequent securities transactions within your TFSA;
• you quickly relinquish ownership of the securities in your TFSA;
• you demonstrate extensive knowledge of or experience in securities markets;
• securities transactions form a part of your ordinary business or employment;
• you spend ample time studying securities markets and potential purchases;
• you use debt financing to purchase securities that you transfer to your TFSA;
• you advertise your willingness to purchase securities; and
• the securities within your TFSA are speculative in nature or do not distribute dividends.

These factors reflect the CRA’s interpretation of a longstanding body of Canadian tax cases that have debated whether a gain or loss from selling securities should be recorded on an income or capital account. The CRA also maintains that extraordinary growth within your Tax-Free Savings Account is a key indicator of business activity.

According to the methodology that the CRA employs, your status as an amateur investor doesn’t guarantee that you’ll escape a TFSA tax audit. Although professional investors who trade within their TFSAs seem more likely targets, amateur investors who build large TFSA balances through a frequent-trading strategy may also find themselves the target of a CRA tax audit.

If your exposure to a TFSA tax audit concerns you—or if you’re already the subject of a TFSA audit—book a consultation with one of our knowledgeable Canadian tax lawyers today.

7. Understand TFSA Rules for Non-Residents (if a Canadian Moves to Another Country)

If you become a non-resident of Canada for tax purposes, you can keep your existing TFSA, and the investment income earned within it will stay tax-free in Canada. However, you cannot make new TFSA contributions while you are a non-resident.

If you contribute to your TFSA after becoming a non-resident, the CRA will charge a 1% monthly penalty tax on the contributed amount for each month it remains in your account. Additionally, you will not earn new TFSA contribution room in any year during which you are a non-resident.

For example, suppose you leave Canada and become a non-resident in 2025 but still contribute $3,000 to your TFSA in July 2025. You will incur a 1% penalty ($30 per month) for each month that the excess remains in your account while you are a non-resident.

FREQUENTLY ASKED QUESTIONS

How do I calculate my TFSA contribution room for 2025?

Your 2025 TFSA contribution room is the total of the following three amounts:
(1) your $7,000 TFSA dollar limit for 2025,
(2) the amount of any withdrawals from your TFSA during the 2024 year, and
(3) your unused TFSA contribution room from previous years.

What happens if I accidentally overcontribute to my TFSA in 2025?

Suppose you accidentally contribute more than your available TFSA contribution room in 2025. In that case, the Canada Revenue Agency (CRA) will impose a 1% penalty per month on the excess until it is withdrawn or new contribution room becomes available the following year.

For example, if you exceed your TFSA limit by $2,000 in May 2025, you’ll incur a $20 monthly penalty until you remove the excess or until your new 2026 TFSA contribution room covers it. The CRA may also send you a formal notice outlining the overcontribution amount and the penalties owed.

To minimize penalties, withdraw the excess contribution as soon as you realize the error. If you made the overcontribution due to a genuine mistake or incorrect information from the CRA’s online account, you can apply for relief under subsection 207.06(1) of the Income Tax Act. Our Canadian tax lawyers have successfully helped clients prepare these CRA relief applications to request cancellation of TFSA overcontribution penalties.

I calculated my 2025 TFSA contribution room using the TFSA account statements that I received from my bank. But when I reviewed my online CRA account, the amount that I calculated did not match the 2025 TFSA contribution room that the CRA calculated. It appears the CRA’s calculation omits some of my TFSA withdrawals from last year. Why is that? Does this mean that my TFSA contribution room calculation is incorrect?

The CRA’s calculation might be wrong, especially if you check during the first few months of 2025. This is because financial institutions don’t file their TFSA informational returns until the end of February 2025, and it takes a couple of months for the Canada Revenue Agency to update the new TFSA information on each taxpayer’s online CRA account. As a result, if you check your CRA account during the first part of 2025, there’s a good chance that the CRA’s calculation of your 2025 TFSA contribution room will be inaccurate.

Now that we’re near the end of 2025, the Canada Revenue Agency should have updated its calculation of your 2025 TFSA contribution room, so if you performed your own calculations earlier in the year, you should now recheck the CRA’s calculations. Your TFSA calculations should now match the CRA’s calculation. If the CRA’s calculation still doesn’t match the calculation based on your TFSA account statements, contact our Canadian tax lawyers to discuss your options.

Can I hold Cryptocurrency in my TFSA?

No. You can only hold “qualified investments” in your Tax-Free Savings Account (TFSA). A “qualified investment” generally refers to money and securities that are listed on a designated stock exchange. The definition of “qualified investment” under Canada’s Income Tax Act explicitly excludes cryptocurrency.

That said, while cryptocurrencies themselves are not considered “qualified investments,” many publicly listed cryptocurrency-based ETFs (exchange-traded funds) do qualify. These funds are recognized as “qualified investments” if they are listed on a designated stock exchange, such as the Toronto Stock Exchange (TSX), the New York Stock Exchange (NYSE), or any other Canadian or international stock exchange designated by the Minister of Finance for the purposes of the Income Tax Act.

A TFSA holder incurs significant penalties and tax liability for holding non-qualified investments within a TFSA. If your TFSA acquires a non-qualified investment—or if an existing TFSA investment later becomes non-qualified—you’ll face a penalty tax equal to 50% of the fair market value of the non-qualified investment. You’ll also be required to pay tax on any income or capital gains earned from that investment.

If you’re unsure whether your TFSA currently holds any non-qualified investments—or if you’ve received a TFSA penalty assessment from the Canada Revenue Agency (CRA)—consult one of our Canadian tax lawyers today. Our team can assist you in reviewing your holdings, identifying compliance issues, and preparing a subsection 207.06(2) relief application to request CRA cancellation of TFSA penalties where appropriate.

When am I considered a non-resident of Canada for TFSA purposes?

You are generally considered a non-resident of Canada for tax purposes if you normally, customarily, or routinely live in another country and are not considered a resident of Canada. You may also be considered a non-resident if you do not have significant residential ties in Canada and either of the following applies:

(1) you live outside Canada throughout the tax year, or
(2) you stay in Canada for fewer than 183 days during the tax year.

However, even if you no longer live in Canada, you might still be regarded as a factual or deemed resident if you maintain strong residential ties, such as a home, a spouse or common-law partner, dependants, personal property (for example, a vehicle or furniture), or social connections in Canada, or based on the tiebreaker provisions of a tax treaty.

Other relevant indicators include holding a Canadian driver’s licence, maintaining bank accounts or credit cards in Canada, or keeping provincial health insurance coverage. If you are unsure about your residence status or whether you can continue contributing to your TFSA, consult one of our expert Canadian tax lawyers for personalized advice and guidance.

DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.