Canada Revenue Agency reminded taxpayers to watch their Tax-Free Savings Account contribution room before adding money to a TFSA.
The agency said Canadians have been able to contribute to TFSAs since 2009 and that the account allows tax-free investment growth when the rules are followed.
For 2025, the annual TFSA dollar limit is $7,000. CRA also noted that the 2024 limit was $7,000.
Contribution room is the key limit. TFSA room depends on the annual dollar limits, unused room from previous years, and qualifying withdrawals from earlier years. Contributing more than available room can create an excess TFSA amount.
CRA warned that indirect transfers from one TFSA to another are treated as contributions. A taxpayer who withdraws from one TFSA and recontributes to another before the withdrawn amount is added back to room can accidentally overcontribute.
If a taxpayer exceeds TFSA room, CRA may send a notice through CRA account or by mail. Withdrawing the excess contribution as soon as possible can reduce the tax owing on the excess amount.
The agency also pointed to relief rules. CRA can waive or cancel all or part of the TFSA tax where it considers that fair after reviewing the circumstances, but the taxpayer must explain why the liability arose and why relief should be granted.
The tax advantage is therefore conditional on careful record-keeping. A TFSA can shelter investment growth, but only room that actually exists can be used without penalty.