Before you contribute to a TFSA
On this page
- What is contribution room
- How contribution room accumulates
- Types of permitted TFSA investments
- Do not contribute if you are a non-resident
What is contribution room
Your contribution room is the maximum amount you can contribute to your Tax-free Savings Account (TFSA). It is specific to you and can change each year, as well as when you make TFSA contributions and withdrawals.
If you have more than one TFSA, your contribution room is the total that you can contribute to all your accounts collectively.
How contribution room accumulates
If you are a resident of Canada, your contribution room starts to accumulate when you turn 18 years of age. This is when the annual TFSA dollar limit, which is set by the Government, becomes available to you as contribution room.
Example: How contribution room accumulates over time
2023
Joe is a resident of Canada. When he turned 18 years of age in 2023, he opened a TFSA.
The dollar limit was $6,500 in 2023 and Joe contributed the full amount. As a result, his contribution room was $0 for the rest of 2023.
Available room:
2024
In 2024, the new annual dollar limit was $7,000, so Joe now had $7,000 in available contribution room. But Joe had less money to invest this year and contributed only $2,000. This left him with an available contribution room of $5,000 for the rest of 2024.
Available room:
2025
In 2025, the annual limit is $7,000. If we combine that with the $5,000 of unused contribution room from the previous year, Joe’s new available contribution room is $12,000. This is the maximum amount he can contribute in 2025.
Available room:
New residents
If you are a new resident of Canada, you start to accumulate contribution room in the year that you have residency if you are 18 years of age or older.
Example: Contribution room begins the year you have residency
David turned 40 in 2023 and became a resident of Canada the same year. In November of 2023, he received an inheritance and contributed $88,000 to a newly opened TFSA. He believed he was entitled to the total annual TFSA dollar limit since the program began in 2009.
David did not know that the dollar limit only applies to him for the years he was a resident of Canada. Because David only became a resident of Canada in 2023, he only has $6,500 of available contribution room (the dollar limit for 2023).
If David does not remove his excess contribution right away, he will have to pay a 1% tax on the excess for every month the excess remains in the account.
Non-residents
If you are or become a non-resident who is 18 years of age or older and have a valid Social Insurance Number (SIN), you may also accumulate contribution room if you make withdrawals. However, do not make any contributions until you have residency again. Any contribution you make while you are a non-resident is taxable.
For more information: Do not contribute if you are a non-resident
The TFSA dollar limit adds new room every year
New contribution room becomes available every calendar year when the Government of Canada assigns the annual dollar limit. The dollar limit is the same for all TFSA holders and is set every January 1.
You may contribute up to the full amount of the dollar limit each year tax-free if you have the available contribution room. You may only contribute more than the annual dollar limit if you have unused contribution room still available from previous years.
| Years | Dollar limit |
|---|---|
| 2009 to 2012 | $ 5,000 |
| 2013 and 2014 | $ 5,500 |
| 2015 | $10,000 |
| 2016 to 2018 | $ 5,500 |
| 2019 to 2022 | $ 6,000 |
| 2023 | $ 6,500 |
| 2024 and 2025 | $ 7,000 |
The TFSA dollar limit is indexed to inflation and rounded to the nearest $500.
Contributions reduce your available room
Any amount you contribute to your TFSA during the year reduces your remaining available contribution room in the same year.
If you contribute more than your available contribution room, it is an over-contribution and is taxable at a rate of 1% per month.
For more information:
Withdrawals are added back the next year
Any amount you withdraw from your TFSA during the year will be added back as available contribution room the next calendar year on January 1.
For more information: How withdrawals affect contribution room
Fees do not affect your room
Any TFSA management fees that you may have to pay, as well as any fees paid by a TFSA trust (such as for investment counsel) do not affect your available contribution room.
Types of permitted TFSA investments
The types of investments that are permitted in a TFSA are generally the same as those permitted in an RRSP. They include the following:
- Cash
- Mutual funds
- Securities listed on a designated stock exchange
- Guaranteed investment certificates
- Bonds
- Certain shares of small business corporations
Investments that are not permitted include any investment that is or becomes prohibited, non-qualified or that has an advantage. Non-permitted TFSA investments are taxable.
For more information: If you owe tax on non-permitted investments
How some investments can affect your TFSA
Value of investment has no impact
Changes in the value of your TFSA investments do not affect your contribution room. Any earnings you make from your TFSA do not decrease your contribution room. Likewise, any losses you have do not increase your contribution room.
Example: Investment earnings do not affect contribution room
Brayden was eager to open his TFSA, but he didn’t turn 18 until December 21, 2023.
2024
On January 4, 2024, he opened a TFSA. His available contribution room was $13,500 (the combined maximum TFSA dollar limits for 2023 and 2024).
On the advice of his broker, he opened a self‑directed TFSA and invested $13,500 in stocks.
Brayden's investments grew in value and by the end of 2024 his TFSA had increased by $300. Brayden was worried that for 2025, he would only be able to contribute $6,700 (the 2025 dollar limit less the $300 increase in value in his TFSA through 2024). But he did not need to worry.
2025
The earnings generated in the account and the increase in its value will not reduce the TFSA contribution room in the following year. Brayden can contribute up to $7,000 to his TFSA in 2025.
Watch exchange rates of foreign funds
You may contribute foreign funds to a TFSA. However, when your financial institution reports the information to us, they will convert the funds to Canadian dollars using the exchange rate on the date of the transaction. The total amount of your TFSA contribution in Canadian dollars must not be more than your available contribution room.
If you have a self-directed TFSA
You may move some investments that you already have into your self-directed TFSA, but it is not always recommended.
Do not transfer from your RRSP
A transfer from your RRSP counts as income. If you transfer RRSP investments to your TFSA, you are considered to have withdrawn the investment from your RRSP at the fair market value (FMV). This can have serious tax consequences.
Because the withdrawal counts as income, you must report it in your Income Tax and Benefit Return for that year. You may claim the tax withheld on the withdrawal at line 43700 of your return.
The amount of the contribution will be the FMV of the investment at the time of the contribution. So if you transfer the amount some time after the withdrawal, the FMV may have changed.
When an exchange is between two registered accounts (such as an RRSP and a TFSA), you cannot usually exchange securities for cash or for other securities of equal value.
In-kind contributions must be qualified
You may make in-kind contributions if they are qualified investments.
What is an in-kind contribution
An in-kind contribution is a seamless transfer of assets (without selling them first) from your regular portfolio (a non-registered account) to your TFSA. Qualified in-kind contributions may include the following:
- Guaranteed investment certificates
- Government and corporate bonds
- Mutual funds
- Securities listed on a designated stock exchange
An in-kind contribution is considered disposed of at fair market value (FMV) at the time of the contribution.
- If the FMV is more than the cost of the property, you must report the capital gain in your Income Tax and Benefit Return
- If the FMV is less than the cost of the property, you cannot claim the capital loss
The total amount of the contribution to your TFSA is equal to the FMV of the property. This contribution will immediately reduce your available contribution room by the same amount.
Do not contribute if you are a non-resident
If you become a non-resident of Canada for income tax purposes, you cannot contribute to your TFSA tax-free.
If you make a non-resident contribution, except for a qualifying transfer or an exempt contribution, you will be taxed at a rate of 1% for each month the contribution remains in the account. You may also be liable for other taxes.
For more information: