Like the RRSP, a TFSA can hold just about any type of investments including stocks, bonds, mutual funds, exchange traded funds, real estate investment trusts and even some options. CTV News
Starting January 1, 2026, Canadians will have more room to grow their savings tax-free. Ottawa has announced an additional $7,000 in Tax-Free Savings Account (TFSA) contribution space for all eligible adults — the same annual increase seen over the past two years.
With this adjustment, anyone who has been eligible for the TFSA since its launch in 2009 but has never contributed can now invest up to $109,000 in total.
More Room to Save — and More Room for Mistakes
A TFSA allows investments to grow tax-free, with withdrawals permitted at any time. However, keeping track of contribution space can quickly become complicated.
Withdrawals made in previous years are added back as new contribution room in the following calendar year, meaning some investors could have much more than the $109,000 limit. Gains from investments further increase the account’s total value, making it harder to calculate available space accurately.
The challenge deepens when contributions are spread across multiple banks or financial institutions. Varying annual limits, which have changed several times since 2009 to reflect inflation, also add to the confusion.
CRA Lists Limits — But They May Not Be Accurate
The Canada Revenue Agency (CRA) provides TFSA holders with an estimate of their available contribution room through its online portal, My Account. Yet, experts warn this figure isn’t always up to date.
Financial institutions are responsible for reporting contribution and withdrawal data to the CRA, but delays are common. In 2024, some account information wasn’t fully updated until mid-year.
That lag could lead to costly mistakes. Over-contributing to a TFSA comes with a steep penalty — one percent of the excess amount per month, compounding until the error is corrected.
As the number of TFSA users reached nearly 20 million in 2024, the CRA reportedly collected $166 million in penalties — a sharp rise from $131 million in 2023 and just $15 million in 2015.
How the TFSA Compares
The TFSA remains one of the most tax-efficient investment tools available to Canadians. Any returns — whether from capital gains, interest, or dividends — are entirely tax-free.
By contrast, gains in non-registered accounts are taxed: 50 percent of capital gains are taxable, and dividends and interest income are subject to full taxation, with limited credits.
However, investors should note that U.S. dividends held in a TFSA face a withholding tax by the U.S. Internal Revenue Service (IRS), even if earned through Canadian mutual funds or ETFs.
Using TFSA and RRSP Together
Many financial experts recommend using the TFSA strategically alongside the Registered Retirement Savings Plan (RRSP). While RRSP contributions are tax-deductible, withdrawals are fully taxed as income. TFSA withdrawals, on the other hand, remain completely tax-free.
For retirees, that flexibility can help reduce taxable income, minimize Old Age Security (OAS) clawbacks, and maintain lower marginal tax rates.
One reminder for investors: any TFSA withdrawals made late in 2025 will not free up space until 2026. That means you’ll need to wait until the new year to re-contribute — along with the newly added $7,000 limit.
