The 2025 TFSA annual limit is $7,000. All growth and withdrawals are completely tax-free, withdrawals don't count as income, and withdrawn amounts are added back to your contribution room on January 1 of the next year. If you've been eligible since 2009 and never contributed, your cumulative room is approximately $102,000.
How the TFSA Works
The Tax-Free Savings Account was introduced by the federal government in 2009 and has become a cornerstone of Canadian tax planning. Despite the name, a TFSA is not just a savings account — it is a registered account that shelters investment growth from tax entirely. Any interest, dividends, or capital gains earned inside a TFSA are never taxed, not even when you take the money out.
Unlike an RRSP, you do not get a tax deduction for contributing to a TFSA. You contribute after-tax dollars. The payoff comes on the other end: every dollar that grows inside the account, and every dollar you withdraw, is completely free of tax. There are no rules about what you can spend TFSA withdrawals on, no repayment schedules, and no age at which you are forced to close or convert the account.
Any Canadian resident who is 18 years of age or older and has a valid Social Insurance Number is eligible to open a TFSA. You can hold multiple TFSAs at different financial institutions, but your total contributions across all accounts cannot exceed your available contribution room.
2025 Contribution Room: How Much Can You Contribute?
For the 2025 calendar year, the annual TFSA contribution limit is $7,000. This new room became available on January 1, 2025.
The TFSA program is cumulative. Every year since 2009, eligible Canadians have been accumulating room, whether or not they actually contributed. If you turned 18 before 2009 (or in 2009) and have never made a single TFSA contribution, your total available room in 2025 is approximately $102,000.
| Year | Annual Limit | Cumulative Total |
|---|---|---|
| 2009–2012 | $5,000/yr | $20,000 |
| 2013–2014 | $5,500/yr | $31,000 |
| 2015 | $10,000 | $41,000 |
| 2016–2018 | $5,500/yr | $57,500 |
| 2019–2022 | $6,000/yr | $81,500 |
| 2023 | $6,500 | $88,000 |
| 2024 | $7,000 | $95,000 |
| 2025 | $7,000 | $102,000 |
Your personal contribution room may differ if you have already made contributions in past years, if you had withdrawals that restored room, or if you only became eligible (turned 18 or became a Canadian resident) after 2009. The only reliable way to know your exact available room is to check CRA My Account online or call the CRA at 1-800-959-8281.
You accumulate TFSA room every year you are a Canadian resident aged 18+, even if you don't have a TFSA account open. Your room doesn't disappear if you close an account — you can re-open one anytime and use your accumulated room.
What Counts as a TFSA Contribution?
Any cash you deposit into your TFSA is a contribution and counts against your room. Transfers between your own TFSA accounts at different institutions (processed as a direct transfer) do not count as a contribution — but if you withdraw from one TFSA and deposit the cash into another, that deposit is treated as a new contribution.
Investment growth inside your TFSA — interest, dividends, capital gains — does not count as a contribution. You can have $50,000 of growth inside your TFSA and it has no impact on your contribution room. Only the money you put in from outside the account affects your room.
Transfers of securities "in kind" (moving actual stocks or funds rather than cash) from a non-registered account into your TFSA count as contributions at the fair market value on the date of transfer. If a security has an unrealized loss at the time of transfer, that loss cannot be claimed for tax purposes.
What Investments Can You Hold in a TFSA?
TFSAs can hold a wide range of "qualified investments" — the same types permitted in an RRSP. This includes:
- Cash and GICs (including high-interest savings accounts)
- Canadian and foreign stocks listed on designated stock exchanges
- Bonds, including federal, provincial, and corporate bonds
- Mutual funds and index funds
- Exchange-Traded Funds (ETFs)
- Canada Savings Bonds
Prohibited investments include shares of private companies where you or a non-arm's length person has a significant interest (generally 10% or more), and certain debt obligations. Holding a prohibited investment results in a 50% penalty tax on the fair market value of that investment.
Note that U.S.-listed dividend-paying stocks held inside a TFSA are subject to a 15% U.S. withholding tax on dividends, which cannot be recovered through a foreign tax credit (unlike in an RRSP). For U.S. dividend stocks, an RRSP is generally the more tax-efficient shelter.
How TFSA Withdrawals Work
You can withdraw any amount from your TFSA at any time, for any reason, with no tax consequences. The withdrawal is not reported as income on your tax return, it does not affect income-tested benefits like the Guaranteed Income Supplement (GIS), Old Age Security (OAS) claw-back calculations, or the Canada Child Benefit, and it is not subject to any withholding tax.
The key rule about withdrawals is the re-contribution timing rule: the amount you withdraw is added back to your contribution room on January 1 of the following calendar year — not immediately. If you withdraw $20,000 in March 2025 and try to re-contribute that same $20,000 in October 2025, you will have over-contributed (assuming your room was already used up).
If you withdraw from your TFSA in 2025 and re-contribute that amount before December 31, 2025, you will over-contribute and face a 1% per month penalty on the excess. The withdrawn amount only restores to your room on January 1, 2026. Wait until the new year to re-contribute.
TFSA vs. RRSP: Which Should You Choose?
This is one of the most common Canadian tax planning questions. The short answer: the TFSA wins when you expect your marginal tax rate to be the same or higher in retirement; the RRSP wins when you expect your marginal tax rate to be lower in retirement (which is the case for most moderate-to-high earners).
| Feature | TFSA | RRSP |
|---|---|---|
| Contribution deductible? | No | Yes |
| Growth taxed? | Never | On withdrawal |
| Withdrawals taxable? | Never | Yes, as income |
| Affects income-tested benefits? | No | Yes |
| Mandatory conversion age? | None | Age 71 (to RRIF) |
| Room restored after withdrawal? | Yes (next Jan 1) | No |
| 2025 annual limit | $7,000 | 18% of earned income, max $32,490 |
For lower-income Canadians (roughly under $57,375 of taxable income in 2025), the TFSA is often the better choice because there is minimal tax benefit from an RRSP deduction at the 15% federal rate, and RRSP withdrawals in retirement could claw back GIS or other benefits. For higher earners who expect their income to drop significantly in retirement, the RRSP deduction at a 29% or 33% marginal rate, with withdrawals at a 20.5% rate later, is often more valuable.
Many Canadians benefit from using both: maximizing the RRSP deduction first to reduce taxable income, then investing the resulting tax refund into the TFSA.
Common TFSA Mistakes to Avoid
The CRA assesses over-contribution penalties automatically based on the data it receives from financial institutions. The penalty is 1% per month on the highest excess amount in a given month. Even a short-term over-contribution can trigger a penalty notice.
- Over-contributing: Always verify your available room before depositing. Use CRA My Account for the most up-to-date figure.
- Re-contributing withdrawals in the same year: As described above, withdrawn amounts are only restored on January 1 of the next year.
- Contributing as a non-resident: If you are a non-resident of Canada (even temporarily), any TFSA contributions made while non-resident are subject to a 1% per month penalty tax. Your room does not accumulate during years you are a non-resident.
- Assuming multiple accounts give more room: Having two or three TFSAs doesn't multiply your limit. Your room is shared across all accounts.
- Not keeping records of contributions and withdrawals: Your financial institution reports to the CRA, but the CRA's records can be up to a year behind. Keep your own tracking.
Want to See Your TFSA vs. RRSP Tax Savings?
Use our free Canadian tax calculator to model different contribution scenarios and see exactly how much you can save with the right strategy for your income level.
Frequently Asked Questions
How do I check my TFSA contribution room?
The easiest way is to log in to CRA My Account at canada.ca. Under "RRSP and savings plans," you will find your TFSA contribution room as of January 1 of the current year. Note that it may not reflect contributions made in the most recent few months. You can also call the CRA Tax Information Phone Service (TIPS) at 1-800-267-6999.
What happens to my TFSA when I die?
You can name a "successor holder" (spouse or common-law partner) who inherits the TFSA and its tax-free status intact — the account simply continues in their name. You can also name a "designated beneficiary" (anyone, including adult children), who receives the proceeds tax-free, but the funds no longer have TFSA status in the beneficiary's hands. Without a named beneficiary or successor, the TFSA passes through your estate, and any growth after the date of death may be taxable.
Can I have a TFSA if I'm retired?
Absolutely. There is no upper age limit for a TFSA. Unlike an RRSP (which must be converted to a RRIF by December 31 of the year you turn 71), a TFSA can remain open indefinitely. This makes it especially valuable in retirement for holding assets that would otherwise generate taxable income, such as GIC interest or dividend income.
Do TFSA withdrawals affect my OAS or GIS?
No. Because TFSA withdrawals are not included in your taxable income, they have no effect on income-tested benefits. This is a major advantage for retirees who want to supplement their income without triggering OAS clawbacks (which begin at $93,454 of net income in 2025) or reducing GIS payments.
Can I use my TFSA to buy a house?
Yes, freely — there are no restrictions on how you use TFSA withdrawals. Unlike the RRSP Home Buyers' Plan, there is no repayment requirement. However, if you are a first-time home buyer, you should also consider the First Home Savings Account (FHSA), which gives you both a tax deduction on contributions and tax-free withdrawals for a qualifying home purchase.