Contributions to a Tax-Free Savings Account (TFSA) are not tax-deductable, but the income or capital gains earned from any investments in the TFSA are tax free at withdrawal. The annual TFSA dollar contribution limit for the years 2009, 2010, 2011 and 2012 was $5,000. The annual TFSA dollar contribution limit for the years 2013 and 2014, 2015 is $5,500. Under proposed newest of 2015, the annual TFSA dollar limit for 2015 will be increasing from $5,500 to $10,000. Even though this has not been formally approved by the parliament, after the announcement that the Budget Bill contains the new TFSA limit for 2015, the Canada Revenue Agency issued a statement confirming that Canadians can immediately contribute up to the new limit.
A Canadian tax payer’s Tax-Free Savings Account contribution room depends on the TFSA dollar limit, any unused TFSA contribution room from the previous year, and any withdrawals made from the TFSA in the previous year. This means that if one did not contribute anything for 2013, then in 2014, one can contribute using the unused contribution room from 2013. However, one can only contribute up the allotted contribution room every year. The earnings generated in the account and the increase in its value will not reduce the TFSA contribution room in the following year. But any excessive contribution will be subject to a tax that is equal to 1% of the excessive contribution.