Reader Question - If I do not open a TFSA in 2009 will the $5,000.00 contribution room carry forward, enabling me to contribute up to $10,000.00 in 2010?
If you do not use your TFSA contribution room, it will definitely carry forward. You are given $5,000 per year of contribution room. As long as you are a resident of Canada and over age 18, you will be able to carry forward and add your pays unused contribution room to new TFSA contribution room.
Who Can Contribute To A TFSA?
Anyone who is both a resident of Canada and is over the age of 18 can contribute to a TFSA.
If you do not contribute to a TFSA or don’t use all of your contribution room, the unused amount will carry forward indefinitely. There is no need to open a TFSA account to generate TFSA contribution room.
How To Calculate TFSA Contribution Room
The TFSA contribution room is calculated differently than RRSP contribution room and is more straight forward:
- Unused TFSA contribution room from last year
- Plus: TFSA withdrawals from last year
- Plus: The new TFSA dollar limit from the current year
- Less: Contributions to the TFSA in the current year.
Avoid Over Contributions
There is a penalty tax of 1% per month on over contributions (also called the excess TFSA amount). The penalty tax is based on the highest value in the TFSA during the month.
Questions About The TFSA?
Do you have a question to want to make a comment on the TFSA? Please feel free to leave a comment.
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{ 26 comments… read them below or add one }
It might be even more, depending of our inflation in 2009…..
http://www.cra-arc.gc.ca/E/pub/tg/rc4466/rc4466-08e.pdf
“……For 2009, if you are eligible, you can contribute up to $5,000 to
your TFSA. After 2009, the annual TFSA dollar limit will be
indexed to the inflation rate.
The indexed amount will be rounded to the nearest $500. For
example, assuming that the inflation rate is 2%, the TFSA dollar
limit would remain at $5,000, for 2010 and 2011, but would
increase to $5,500 for 2012.”
@ Northern Alex: Inflation will not be an issue. CPI was only 1% for the 12 months ending November.
I bought $5,000 worth of stock in my TFSA in March 2009 (Teck Resources). The valueof my TFSA has now increased to approximately $32,000.
So, if I withdraw all $32,000 tax free (downpayment – here we come!), will my TFSA contribution room next year increase by $32,000? Will the $32,000 also be indexed to inflation?
I’m a bit confused by this bullet I found on CRA’s site:
http://www.tfsa.gc.ca/tfsapamphlet-eng.html
• You can withdraw funds available in your TFSA at any time for any purpose,— and the full amount of withdrawals can be put back into your TFSA in future years.
@ Chris –
With the TFSA, he amount you withdraw can be re-contributed in future but is not indexed to inflation. In your case, if you withdraw the $32,000 and don’t make contributions until 2012 your contribution limit would be $32,000 plus $5,000 for 2010, $5,000 for 2011 and $5,500 for 2012 or $47,500 (assuming 2% inflation – see).
This link at the CRA explains it better
Also look at the CRA’s main TFSA page.
@TaxGuy:
Sorry, I don’t want to be a smarty pants, but I understood it differently:
Looking at your link I understood CRA that if Chris withdraws the $32,000 in 2010 he will be allowed only the max contribution amount for both years.
He won’t be able to add more than $10,000 back in his FTSA to re- invest in 2010…
That’s how I understood it.
Are you positive about that?
@Northern Alex
I’m not sure where the $10,000 for both years comes from but …
In 2009 Chris contributed $5,000 to his TFSA that grew to $32,000. In 2010, he withdraws the full $32,000.
The TFSA dollar limit for 2010 is $5,000 and assuming a 2% annual level of inflation, the TFSA dollar limits would be:
• 2011 – $5,000
• 2012 – $5,500
2009:
2009 TFSA Dollar Limit = $5,000
Less: 2009 Contributions = $5,000
Unused contribution room carried forward = $0
2010:
Chris withdraws $32,000 from the TFSA and does not make any contributions. His contribution limit for 2010 is:
Unused contribution room carried forward = $0
Plus: 2010 TFSA Dollar Limit = $5,000
Available room for 2010 = $5,000
2011:
Unused contribution room carried forward = $5,000
Plus: 2010 Eligible withdrawal = $32,000
Plus: 2011 TFSA Dollar Limit = $5,000
Available room for 2011 = $42,000
2012:
Unused contribution room carried forward = $42,000
Plus: 2012 TFSA Dollar Limit = $5,500
Available room for 2011 = $47,500
This is straight from the CRA example on their TFSA contribution room page.
Can a TFSA account ever go dormant? I know there are rules that says that if there is no activity within 9or10 years that the bank holding my TFSA has an obligation to pay it to the Bank of Canada. If that is the case, then the monies are paid out of the TFSA and paid to the holding account at Bank of Canada, which are not tax-sheltered. Can anyone confirm/help? Reference to legislation/websites would be appreciated.
MMan: I can’t say if the dormancy rules apply to registered accounts or not. You can try and look at the Office of The Superintendant of Financial Services website.
If I contribute $5,000 to TFSA in year one and buy stocks which pay, say $500 in dividends in year one and these are reinvested (DRIP). Then is the contribution limit for the following year reduced to $4,500 because I reinvested the $500 tax free income.
Bernie: The investment income earned does not affect your TFSA contribution room. Withdrawals from your TFSA will affect your contribution room.
In the scenario, you mentioned, your year 2 TFSA room would be $5,000.
If the TFSA contains Securities enrolled in a DRIP then is the portion of the dividend, all of which itself is tax free, considered a “contribution” for the current year. In other words does my 3 shares of BNS “purchased” at $150 through DRIP apply against this year’s or next year’s contribution room. If it applies against current year’s limit then I will have over contributed ( assuming I made full $5,000 contribution on January 1st). If it is to be considered for next year’s limit calculation it all becomes very complicated over the years.
Also is there a cap on this plan – for example after 10 years I have contributed $50,000 and this earns 10%. So in year 11, I will have $5,000 tax free income, but it is all in DRIP. Or can I keep going and going to $100,000 in “new” contributions like the everready bunny.
Hi Bernie:
The income earned inside the TFSA is “tax-free”. If you have a stock inside of a TFSA, the dividends received are received inside the TFSA and are tax-free. It increases the balance in the TFSA and can be re-invested … tax-free.
nice blog Tax Guy.
Just to clarify… If I didn’t open a TFSA account in 2009 and have since opened one in 2010. My contribution room is 10k?
thanks!
Correct!
I was wondering about the tfsa room…it says on my tax return mine is at $10000 what does this mean? there is 10000 dalloars in there for me to use or do i have roo for me to deposit up to $10000? please let me no…
Hello Lisa,
The TFSA is a type of bank or investment account. You deposit money in the account, invest it, and your investment earnings grow tax-free. In addition, when you withdraw the funds, you pay no tax on the withdrawal.
The $10,000 on your notice of assessment it telling you that in 2010, you can deposit up $10,000 in a TFSA.
Here a question ,are the cost of trading stock inside my tfsa included in the $5000.00 limit ex: If I do 10 trade at $15.00 for a cost of $150.00 is the value of the stock limit to $4850.00
Hello Francois:
The cost of trading your stocks is not related to your TFSA contribution. If you deposit $5,000 to your TFSA, you have made a $5,000 contribution. Your trade fees are added to your purchase price.
if you have 10,000 in your TFSA contribution room, can you take that money out or does it stay there?
if I opened a tfsa in 2009,did’nt put anything in it can I in say 10 years put in 50,000.00 all at once?
Hi Jackie,
Yes. You are correct.
i guess tfsa is indexed and it can go up ever year.. if so what’s the amount for 2010 since it was introduced in 2009, ..
tia
I also was caught up in this situation because my bank failed to supply me with a manual (They said they came in “late” but never mentioned about over RE-contributing to the account OR about withdrawls when I made the one sole withdrawl for a new furnace). I called thr CRS and also got the form from the gov. to “rectify” the sitration.My financial advisor at the bank looked at the form and couldn’t understand it or help me with it. (The form does no good to you it’s only an account of your “bill” from CRS. There needs to be a class action law suite. How? -Peter.
So, I’m not worried about last year, I’m worried about THIS year. I only started withdrawing and re-contributing in January this year when everyone was still oblivious to the fine print. I know they are giving exemptions for last year, but there’s a slim chance they will do it again.
Anyone else in the same boat or know if there is anything we can do to correct the situation now that we know?
P.S. I transferred my TSFA in lat January. All $10,000 of it, and have been withdrawing/re contributing since. I am a student and dipped into the savings quite a bit.
can i open two accounts different bank for tfsa
Hi Lilian,
Yes. You can have more than one account.