The Canadian government allows Canadians to save money in tax-free savings accounts (TFSAs) throughout their lives. Citizens can contribute and increase investments tax-free. The CRA reviews the annual contribution limit based on inflation and CPI changes.
It is important to know the contribution limit to avoid over-contributions and other penalties. As the new year approaches, Canadians with TFSA accounts or people looking to open an account should check their contribution limits to comply with TFSA rules.
2025 TFSA contribution limit
The Canadian government introduced the TFSA program in 2009 to allow individuals to set aside some money for future emergencies during their lifetime. Individuals who meet the eligibility requirements can open an account and contribute to it.
TFSA participants should know the regular adjusted contribution limit for the year to avoid overcontributions and maintain a stable investment in the account. According to the CRA, the TFSA contribution limit for 2025 has not changed; it is the same as the limit for 2024, i.e. 7000 dollars.
The $7,000 contribution limit for a TFSA account is the second highest limit after the $10,000 limit in 2015. The CRA increased the contribution limit by $500 starting in 2019, however, the current scenario sets the limit the same as in 2024.
Canadians should be aware that the TFSA contribution room determines the maximum annual contribution they are allowed to make to their TFSA account, so they should review it annually.
How to calculate TFSA contribution room?
A TFSA account holder cannot contribute beyond their contribution room, which depends on the TFSA dollar limit for the year, unused TFSA contributions from previous years, and any withdrawals you made from your TFSA last year.
A TFSA account holder needs to know their contribution room because it grows each year even when you don’t file a tax return or open a TFSA. Contribution room starts to accumulate after you turn 18, it is not affected by your earned TFSA investment income or changes to TFSA investments.
For example, your contribution room was $6,500 in 2024 and you contributed $1,000 in 2024, so the unused contribution room at the end of the year will be $5,050, now let’s say you withdrew something (say $3,000) and the TFSA the contribution limit is $7,000, so the TFSA contribution room at the beginning of 2025 will be $5,500 + $3,000 + $7,000 = $15,500.
Where to track TFSA contribution space?
If you want to check your TFSA contribution room information, you can use the following services to get your contribution room information for the year:
- The telephone service for tax information can be contacted at 1 800 267 6999;
- You can log into My Account for individuals and check your TFSA contribution room information;
- If you are an authorized representative representing a client, you can log in to represent a client with your user ID or password to verify information.
- You can easily find information on the MyCRA mobile apps.
You can find the 2024 contribution, unused contribution, withdrawals and other information to determine your TFSA contribution room at the beginning of the year.
Who can open a TFSA account?
According to the TFSA guidelines, Canadians who meet the following eligibility requirements can open a TFSA account:
- You must be a resident of Canada and must have a valid Social Security Number (SIN);
- You must be 18 or older to open a TFSA account;
- Non-residents can also take advantage of a TFSA account if they have a valid SIN and meet the age factor, however, their monthly contribution will be subject to a 1% tax.
How much can you save with a TFSA account?
Under TFSA guidelines, the contributions you make to the account are not deductible for tax purposes, and the investment income you make or withdrawals are not taxed.
Therefore, the money you put into the TFSA and your savings will only grow. The savings rate for each participant may vary depending on their investment income, the product they purchased and the type of investment. Participants can check their TFSA account through their account or through the CRA mobile app.
The CRA offers three types of TFSAs – an annuity contract, a deposit and a trust arrangement for participants. Participants can use the TFSA fund for anything, such as buying a new car, house, children’s education, etc.
What is the consequence if you contribute over the limit to your TFSA account?
The TFSA contribution limit ensures that people don’t contribute more in one year in order to save more for the future and make wise financial decisions. The contribution limit also keeps the flow of contributions steady, so if participants have overpaid into a TFSA account, they must face the consequences.
Under TFSA rules, Canadians who make annual contributions above the limit will have to pay tax on every dollar that exceeds the limit at a tax rate of 1%. A 1% tax will be applied to the excess each month you contribute or until more contribution slots are available,
If participants continue to overcontribute, they will have to pay a penalty in the form of taxes or withdraw the excess amount. Therefore, the agency advises TFSA account holders to keep track of their contributions for the year.
A TFSA allows Canadians to save money for the future from age 18 and helps them build tax-free income that they can use for their dreams, emergencies or anything else.
