Examples – Tax payable on excess TFSA amount (2024)

FAQs

What happens if I overpay my TFSA? ›

Over-contributions to TFSAs are subject to a 1% penalty tax per month (only on the over-contribution amount).

At any time in the year, if you contribute more than your available TFSA contribution room you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account. For more information, see Tax payable on excess TFSA amount.

Growth on your investments inside a TFSA does not affect your contribution room, and you can take money out when you want, for any reason, without paying any tax. If you take money out, you can re-contribute it the following year, in addition to the annual maximum. There are penalties for over-contributions.

Most TFSA holders have no tax payable related to their TFSA investments, and no TFSA tax return has to be filed. However, when TFSA taxes are applicable for a year, Form RC243, Tax-Free Savings Account (TFSA) Return, must be filed by June 30, of the following year.

The first four months of the year have been referred to as a 'danger zone' for those relying on TFSA contribution room data posted on their CRA account. If you've based your TFSA contributions on “My Account” information, be aware that it may not be accurate.

What is the penalty for RRSP over-contribution? Taking into account your $2,000 lifetime over-contribution limit, RRSP over-contributions are taxed at a penalty of 1% per month. For example, if you over-contributed to your RRSP by $3,220, you'd subtract $2,000 and be left with an over-contribution of $1,220.

Your TFSA lifetime contribution limit is $95,000. Your ongoing contribution amount. There is new contribution room every year. For 2024, you can contribute up to $7000 plus any unused contribution room from previous years.

If you run up a multi-million-dollar TFSA balance by trading options frequently, the CRA may deem your trading activities to be a business and tax you accordingly. In this scenario, you'll pay even more taxes than you would in a normal account, because income taxes are higher than capital gains and dividend taxes.

What's the catch with a tax-free savings account? ›

If you're asking “What's the catch?”—well, there isn't one, unless you count the yearly limit for the amount of money you can deposit into the TFSA. Each year, the federal government announces what the annual maximum contribution is; for 2024, it's $7,000, and for 2023, it's $6,500.

If you trade extensively in your TFSA, the Canada Revenue Agency (CRA) may consider your account to be "carrying on a business." Any income (dividend and interest) and the full amount of realized gains (net of any realized losses) would be subject to tax.

The tax of 1% on an excess TFSA amount applies from the first $1 of excess contributions. This tax of 1% per month is based on the highest excess TFSA amount in your account for each month in which an excess remains.

If you hold a TFSA when you leave Canada, you can keep it and continue to benefit from the exemption from Canadian tax on investment income and withdrawals. However, you cannot contribute to your TFSA while you are a non-resident of Canada, and your contribution room will not increase.

Yes, you can definitely buy US stocks in a TFSA! All the investment in the TFSA account, whether from capital gains or dividends, is tax-free within Canada. However, U.S. dividends are subject to a 15% withholding tax.

There's no limit on how much you can withdraw from your TFSA. Contrary to popular belief, withdrawing from your TFSA is simple and doesn't incur immediate penalties or taxes. Whether you're cashing in on investments or need quick cash, your TFSA is designed for flexibility.

The RRSP, RESP, and other investment options can be backups after you max out your annual TFSA limits.

If you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. If you re-contribute but do not have contribution room, you will have over-contributed to your TFSA in the year.