Understanding TFSA Contribution Room

by Tax Guy - Burlington Accountant on December 30, 2010 Print This Post Print This Post

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.

In the comments below there is an example of how the TFSA contribution room works.

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.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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