What is the TFSA Limit for 2025?
The Canada Revenue Agency (CRA) has announced that the Tax-Free Savings Account (TFSA) contribution limit for 2025 remains at $7,000, unchanged from 2024.
This means that as of January 1, 2025, eligible Canadians will have a cumulative lifetime TFSA contribution limit of $102,000, provided they were 18 or older in 2009 and have been Canadian residents since then.
What is a TFSA?
Introduced in 2009, TFSAs allow Canadians to earn tax-free income on various investments, including cash, mutual funds, publicly traded securities, guaranteed investment certificates (GICs), and bonds. All income earned within a TFSA is tax-free, enabling Canadians to build savings without tax implications over their lifetimes.
How is TFSA Contribution Room Calculated?
Your TFSA contribution room comprises:
- Annual TFSA Dollar Limit: The set contribution limit for each year.
- Unused Contribution Room: Any contribution room from previous years that hasn’t been utilized.
- Withdrawals from Previous Years: Amounts withdrawn from your TFSA in prior years are added back to your contribution room at the beginning of the following year.
For instance, if you withdrew funds from your TFSA in 2024, that amount is added back to your contribution room on January 1, 2025. It’s important to note that while you can have multiple TFSA accounts, your total contributions across all accounts must not exceed your available contribution room.
Lifetime Contribution Limit
If you’ve never contributed to a TFSA and were eligible since its inception in 2009, your cumulative contribution limit by 2025 is $102,000.
To determine your available TFSA contribution room, you can:
- Log into the CRA’s My Account for Individuals.
- Use the Tax Information Phone Service (TIPS) at 1-800-267-6999.
- Consult with an authorized representative if you have one.
It’s advisable to keep your own records of contributions and withdrawals, as there can be delays in the CRA receiving information from TFSA issuers.
Eligibility for a TFSA
Any Canadian resident aged 18 or older with a valid Social Insurance Number (SIN) can open a TFSA. Even if you haven’t contributed in previous years, your unused contribution room carries forward indefinitely.
What Is an FHSA?
The FHSA is a registered plan specifically designed to help first-time home buyers save for their first home—completely tax-free. It allows you to contribute up to $8,000 per year, with a lifetime contribution limit of $40,000. The best part? Your contributions are tax-deductible, and when it’s time to withdraw your funds to purchase your first home, those withdrawals are tax-free.
In contrast, Canada’s existing Home Buyers’ Plan (HBP) allows eligible Canadians to withdraw up to $35,000 from their RRSP to purchase their first home. However, the HBP requires you to repay the withdrawn funds within 15 years. The FHSA doesn’t have this repayment requirement, making it a more flexible and potentially less stressful option for many first-time buyers.
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Penalties for Over-Contribution
Contributing more than your available TFSA contribution room results in a 1% per month penalty tax on the excess amount for each month it remains in your account. For example, an over-contribution of $3,000 would incur a $30 monthly penalty, totaling $360 over a year. Therefore, it’s crucial to monitor your contributions and ensure they don’t exceed your available room.
By understanding and adhering to these guidelines, you can maximize the benefits of your TFSA and grow your savings tax-free.
For more information on how M7 Group can assist you, and other tax-related matters, contact us today.
Meet the experts behind M7 Group: Adnan Khan, CPA; Matthew Lopes; and Marcos Lopes, PCP. Together, they provide comprehensive tax, accounting, and financial advisory services across North America.
For more information on how M7 Group can assist you and your business with TAX Services, financial clarity, and strategic growth planning, contact us today.
