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2023 TFSA Limit, Contribution Room, and Over-Contribution Penalties

The 2023 New Year will offer another opportunity for you 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 save or invest funds tax-free up to the maximum of your contribution room.

2023 TFSA Contribution Limit

For 2023, the annual TFSA limit will increase to $6,500 (up from $6,000 in 2022).

If you have been eligible to contribute to the TFSA since its inception in 2009, it means that in 20221, you had a total contribution room of $81,500, and for 2023, your contribution room will increase to $88,000.

Essentially, you can invest up to $88,000 upfront in 2023 and not have to pay taxes on the income earned from your investment.

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

YearContribution LimitCumulative Contribution Room
2009$5,000$5,000
2010$5,000$10,000
2011$5,000$15,000
2012$5,000$20,000
2013$5,500$25,500
2014$5,500$31,000
2015$10,000$41,000
2016$5,500$46,500
2017$5,500$52,000
2018$5,500$57,500
2019$6,000$63,500
2020$6,000$69,500
2021$6,000$75,500
2022$6,000$81,500
2023$6,500$88,000

Related: TFSA Over-Contribution Penalties

How the TFSA Annual 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 2019 TFSA limit, the indexation factor is 2.2%. As such, when we calculate the indexed TFSA limit for 2019 (i.e. $5,721 x 2.2%), we have $5,847 which is rounded off to $6,000.

For the 2020 TFSA limit, the indexation factor is 1.90%. When you compute the indexed TFSA limit for 2020 (i.e. $5,847 x 1.9%), you get $5,958, which explains why the TFSA annual limit remains at $6,000.

For the 2021 TFSA limit, the indexation factor is 1.0%. As such, when we calculate the indexed TFSA limit for 2021 (i.e. $5,958 x 1.0%), we have $6,017.58 which is rounded down to $6,000.

For the 2022 TFSA limit, the indexation factor is 2.4%. When you calculate the indexed TFSA limit for 2022 (i.e. $6,017.58 x 2.4%), you get $6,162, which is then rounded down to $6,000.

Using an indexation factor of 6.3%, the 2023 TFSA limit clocks in at just slightly more than $6,500, which is then rounded down to $6,500.

YearTFSA Indexation FactorIndexed TFSA Limit
20090.60%$5,030
20101.40%$5,100
20112.80%$5,243
20122.00%$5,348
20130.90%$5,396
20141.70%$5,488
2015*1.30%$5,559
20161.40%$5,637
20171.50%$5,721
20182.20%$5,847
20191.90%$5,958
20201.00%$6,017
20212.40%$6,162

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

2023 TFSA Unused Contribution Room

If you’ve not contributed 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 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 2023:

  • TFSA limit for 2023 ($6,500), plus
  • Unused contribution room for 2022, plus
  • Withdrawals made in 2022.

TFSA Contribution Room Example

Let’s say Jane became eligible for the TFSA in 2021; however, she could not make any contributions until the following year, in January 2022, when she contributed $8,000. In September 2022, she withdrew $3,000 from her TFSA for an emergency. What is her total contribution room for 2023?

Answer:

  • contribution limit for 2021 = $6,000
  • + contribution limit for 2022 = $6,000
  • contribution made in 2022 = $8,000
  • + withdrawal made in 2022 = $3,000
  • + contribution limit for 2023 = $6,500
  • Total TFSA Room for 2022 = $13,500

For 2023, Jane has a total contribution room of $13,500.

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 Annual Limit, Contribution Room, and Penalties for 2018

TFSA Investment Options

Various investments can be held in a TFSA account, including stocks, mutual funds, ETFs, GICs, bonds, cash, etc. You can learn more about your options in the resources listed below:

If you prefer a hands-off approach to invest your TFSA funds at a much lower fee than the average mutual fund, look at Canada’s Robo-Advisors. Robo-advisors use low-cost ETFs to build your portfolio and charge a small management fee.

Wealthsimple Invest

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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 in “Excess” TFSA contribution, which is then levied a 1% penalty tax per calendar month until it’s removed.

Related:

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Author

Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch is passionate about helping others win with their finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, CBC News, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, and many other personal finance publications. You can learn more about him on the About Page.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

10 thoughts on “2023 TFSA Limit, Contribution Room, and Over-Contribution Penalties”

  1. Gravatar for Enoch Omololu

    @Steve. Exactly- And your points on how TFSA’s can be beneficial to prevent OAS clawbacks and minimize taxes in retirement are spot on!

  2. Gravatar for fin$avvy panda @ finsavvypanda.com

    Hi Enoch!

    This was a fun read. You did a great job at explaining the TFSA!

    I love love love the TFSA! It’s one of the best saving and investing tools that Canadians can take advantage of.

    The only thing is that it’s too flexible and I know my friends who would just treat it like a checking account — just take the money out to spend on random things but never put it back (even though they swear that they would) haha!

    Otherwise it’s awesome for those who are disciplined. ?

    • Gravatar for Enoch Omololu

      @Finsavvy – Yes, the TFSA is very flexible and that definitely has its pros and cons. Thanks for stopping by!

  3. Gravatar for Michael Ray

    Thanks for sharing this info. it’s really nice.

  4. Gravatar for mike

    Hmmm, not that I’m a space cadet or anything but I have no idea how much I’ve contrib used over the years… is there any way to find out?

  5. Gravatar for iverson grimes

    Is the government considering a lifetime limit for contributions or will the present 2020 limit increase yearly by inflation?

    • Gravatar for Enoch Omololu

      @Iverson: As far as we know, the TFSA annual limit will continue to increase with inflation…rounded off to the nearest $500. This may change in the future though when we start having a ton of people with $1 million dollar TFSA accounts!

  6. Gravatar for Maureen Huggins

    Thank you for this information. What is the maximum amount allowable within the TSFA based on investment gains?

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