What do I need to know about making TFSA contributions?

As of January 1, 2009, all Canadian residents age 18 and over are eligible to contribute to a TFSA. You can contribute up to $5,000 per year (with increases in subsequent years indexed to inflation and rounded to the nearest $500) plus any unused contribution room from the previous year and any withdrawals made the previous year (except withdrawals made to correct over-contributions).

Your contribution limits are not determined by income. (Canada Revenue Agency will determine and inform you of your contribution room on your annual Notice of Assessment.)

For each year if the total of your TFSA contributions to all your TFSAs, regardless of financial institution, exceeds your contribution limit, you may face a penalty tax of 1% per month on the highest excess amount for each month that the excess remains in the account(s). Deliberate over-contributions made after October 16, 2009 may also be subject to increased penalty taxes.

Your contribution does not impact your annual RRSP contribution limit.

All income earned in your TFSA, whether interest or other investment income or gains, is tax-free.