The New Year (2018) will bring with it another opportunity to utilize your Tax-Free Savings Account (TFSA) and protect your investment income from taxation. If you’re 18 years old and a resident of Canada, you are eligible to start accumulating TFSA contribution room. You can choose to save or invest funds tax-free up to the maximum of your contribution room.

2018 TFSA Contribution Limit and over the Years (2009 – 2018)

The annual TFSA dollar limit had been pegged at $5,500 for the past 5 years, excluding 2015 when the conservative government briefly increased it to $10,000. For 2018, the annual TFSA limit remains at $5,500!

If you have been eligible to contribute to the TFSA since it’s inception in 2009, it means that in 2018, you will have a total contribution room of $57,500. Essentially, you can invest up to $57,500 upfront and not have to pay any taxes on the income earned on your investment.

The table below shows the annual TFSA contribution limits since 2009:

: TFSA Over-Contribution Penalties

How the Annual TFSA Limit is Calculated

The TFSA annual dollar limit is calculated by indexing it to inflation and rounding it off to the nearest $500. The government determines the indexation factor for each year from the percentage change in the average Consumer Price Index (CPI) over the previous year.

For example, to compute the limit for 2009, we multiply $5,000 by the indexation factor of 0.6% (1.006) in use that year: $5,000 x 1.006 = $5,030. This result was then rounded off to $5,000. For the 2018 TFSA limit, the indexation factor is 1.5%. As such, when we calculate the indexed TFSA limit for 2018 (i.e. $5,637 x 1.5%), we have $5,721 which is just $29 short of the amount that would have resulted in the next $500 increase.

*Inflation-adjustment was canceled for 2015 and the annual limit was pegged at $10,000.

From the table above, it’s obvious that persistent low inflation has prevented the TFSA limit from increasing to the next bracket of $6,000. To get to $6,000, the inflation-indexed amount will need to exceed $5,750 – so apparently, we will have to wait till 2019 to take advantage of an annual $6,000 TFSA limit.

TFSA Unused Contribution Room

If you’ve not been contributing the maximum limit every year, it will accumulate and you’ll have ‘unused’ TFSA contribution room. Unused contribution room can be carried forward indefinitely.

Also, if you choose to withdraw funds from your TFSA in any particular year, the amount withdrawn can be re-contributed in the following year.

To calculate your total contribution for 2018:

  • TFSA limit for 2018 ($5,500), plus
  • Unused contribution room for 2017, plus
  • Withdrawals made in 2017.

Contribution Room Example

Let’s say Jane became eligible for TFSA’s in 2016, however, she was unable to make any contributions until the following year in January 2017, when she contributed $8,000. In September 2017, she withdrew $3,000 from her TFSA for an emergency. What is her total contribution room for 2018?


  • contribution limit for 2016 = $5,500
  • + contribution limit for 2017 = $5,500
  • contribution made in 2017 = $8,000
  • + withdrawal made in 2017 = $3,000
  • + contribution limit for 2018 = $5,500
  • Total TFSA Room for 2018 = $11,500

For 2018, Jane has a total contribution room of $11,500.

If you’re confused about what your unused TFSA contribution room is, you can also find it on your Notice of Assessment or via My CRA Account.

TFSA Investment Options

A variety of investments can be held in a TFSA account including stocks, mutual funds, ETFs, GICs, bonds, cash, etc. Click here for sample index fund and ETF portfolios you can use in your TFSA.

Related: Introduction to Index Investing for the Newbie Investor

TFSA Penalties

There are penalties for running afoul of CRA rules relating to your account. Some non-compliances that result in penalties include:

  • Over-contributing to your TFSA
  • Investing in non-qualified or prohibited investments inside your TFSA
  • Contributing to a TFSA while you’re deemed a non-resident of Canada

The most common offence is when people over-contribute to their TFSA either deliberately or because they’ve misunderstood the withdrawal and re-contribution rules.

Over-contribution results into “Excess” TFSA contribution which is levied a 1% penalty tax per month, until it’s removed.

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