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2017 TFSA Contribution Limit

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The 2017 TFSA contribution limit is $5,500. If you turn 18 in 2017, then this will be the first year in which you start to collect contribution room for your TFSA. This table shows the annual contribution limits since 2009 when the TFSA was introduced:

YearContribution Limit

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You start accumulating contribution room from the year you turn 18 and any contribution room that you don’t use in a given year gets carried forward to future years. So if you were born in 1991 or earlier—that is you were 18 or older in 2009—and you haven’t contributed to a TFSA, your total cumulative contribution room is $52,000.

How the Contribution Limit is Determined

The annual contribution limit is indexed to inflation, and rounded to the nearest $500. This means that if the rules surrounding TFSAs don’t change, the contribution limit will rise by $500 every few years. When the TFSA was introduced in 2009, the limit was set at $5,000. By 2013 inflation had caused the true value of the limit to rise above $5,250, and so it was rounded up to $5,500. The Bank of Canada (BoC) target for inflation is 2% per year so it’s likely the limit will rise to $6,000 per year by 2020.

The reason the contribution limit was $10,000 in 2015 is because the Conservative government implemented a change to the way the limit was set. Rather than have the limit indexed to inflation, it was to be set at $10,000 every year regardless of the effects of inflation. The changes were reversed in late 2015, shortly after the election of the Liberal majority government.

What You Can Contribute

The term “savings account” suggests the TFSA is simply structured as an account that earns interest on the cash you put in it. However, this isn’t the case. You can hold a multitude of different investments in your TFSA including stocks, bonds, guaranteed investment certificates (GICs), mutual funds, and more. All the money earned by the investments in your TFSA—be it capital gains, dividends, or interest—is completely tax-free.

You can even make what are known as “in-kind” contributions to your TFSA. This is when stocks or certain other qualified investments are transferred directly into your TFSA from a non-registered account. If these investments are worth more at the time of the transfer than they were when you bought them, then you’ll have to report the capital gain on your taxes for that year. On the other hand, if they’re worth less than they were when you bought them, you aren’t allowed to claim a capital loss on your taxes. In either case, the amount of the contribution to your TFSA is going to be equal to the fair market value of the property at the time it’s transferred.

Contribution Rules

Your contribution limit for the year consists of three things: the annual contribution limit that’s made available to you, your unused contribution room from the previous year, and any amount you withdrew from your TFSA in the prior year. Note that your unused contribution room is carried forward indefinitely, as there’s no age limit to how long you can have a TFSA. You can keep it open for as long as you live.

If you over-contribute to your TFSA, you’ll be charged a 1% tax on the excess amount for every month you’re over your limit. You’ll either have to take out the extra money or wait until you get more contribution room to stop being charged this tax.

Naming a Beneficiary

When you open a TFSA, you’ll be asked to name a beneficiary. This is the person who will inherit the investments in your TFSA when you pass away. When this happens, however, the account will stop being a TFSA, and any earnings that these investments generate after your death will be considered taxable income, so it will be the beneficiary’s responsibility to pay these taxes. This is why it’s important for you to notify the person who you name as the beneficiary of your TFSA.

If, on the other hand, you’re married or are in a common-law partnership, you can name a successor holder instead of a beneficiary. This person will also inherit the assets in your TFSA when you pass away, but the account will continue to exist as a TFSA, so your spouse or common-law partner won’t have to pay any tax on the growth generated by the investments after your death.

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