TFSA rules in Canada, explained simply

TFSA rules are simple once someone keeps them straight for you: new room arrives every January 1, withdrawals are only added back the following January 1, and anything contributed over your limit is taxed 1% for every month it stays in.

How contribution room works

Your contribution room starts building in the year you turn 18 - or the year you became a Canadian tax resident, if that came later. You get the full annual limit for that first year; the CRA does not pro-rate it, even if you turned 18 in December or immigrated mid-year. Every January 1 after that, a new annual limit is added. Room you don’t use carries forward forever - it never expires while you’re alive and a Canadian resident.

Contributions reduce your room the moment they happen. One catch that surprises people: the limit applies to all of your TFSAs combined. If you have a TFSA at your bank and another at a brokerage, the CRA sees one total - but neither institution can see the other’s accounts, so neither can warn you.

The three rules that trip people up

1. New room arrives on January 1 - all of it, at once

On January 1 your room grows by that year’s annual limit plus every withdrawal you made in earlier years. Nothing about your room changes on any other day of the year except when you contribute.

2. Withdrawals come back next January 1, never sooner

Take $10,000 out in June and that $10,000 of room does not exist again until next January 1. If you re-contribute it in October because “it’s my money and I had the room,” you’ve just created an excess - this exact move is the most common accidental over-contribution in the country.

3. Excess amounts are taxed 1% per month

Contribute more than your room and the CRA taxes the highest excess amount in your account at 1% for every month it stays in (a partial month counts as a full month). It runs until you withdraw the excess or January 1 room absorbs it, and it’s reported on form RC243 - the CRA can also charge interest if you file late. Estimate your exposure with the penalty calculator.

TFSA annual limits by year

The annual dollar limits since the TFSA began in 2009. The cumulative column is the total room for someone who was eligible from age 18 in 2009 and has never contributed.

Your personal number depends on when you turned 18 and became a resident - work it out exactly with the contribution room calculator.

Why CRA My Account’s number can mislead you

The TFSA room shown in CRA My Account is not live. Banks and brokerages report your contributions and withdrawals to the CRA once a year, and the CRA updates your figure after those reports arrive - so the number you see generally reflects the end of last year, misses everything you’ve done since, and can look comfortably high while you’re actually at (or over) your limit. The CRA itself warns Canadians not to rely on it and to keep their own records. If you only check one number before contributing, make it your own running total.

Frequently asked questions

When does new TFSA contribution room arrive?

Every January 1. Your new room is that year’s annual dollar limit plus any withdrawals you made in previous years coming back, plus any unused room carried forward from earlier years.

Do TFSA withdrawals add back to my room right away?

No. A withdrawal is added back to your contribution room on January 1 of the following year - never in the same year. Re-contributing a withdrawal in the same year is the most common cause of accidental over-contribution.

How is the TFSA over-contribution tax calculated?

The CRA charges 1% of the highest excess amount in your TFSA for every month the excess remains, until it is withdrawn or absorbed by new January 1 room. It is reported on form RC243.

Why can the TFSA room in CRA My Account be wrong?

The CRA builds its figure from annual reports sent by banks and brokerages, so it typically lags months behind and misses your current-year contributions and withdrawals. The CRA advises Canadians to keep their own records.