When CRA says the annual limit for a TFSA is $5000, what does it mean? What happens if I put in $6000. The gains will be taxed? How exactly? Divide the gains by 1/6, then tax the 1/6 part???


As far as I know about TFSA's, you would be correct in that you are taxed on the $1000 extra you've put in, but not on the original $5000. Although, one good thing about TFSA's are that every year your account is open, the limit of $5000 is added on to the previous limit, not the amount of money you've put in. If you open one and put in $20, and wait a year, your limit will be increased to $10000, rather than just the additional $5000. So at least if you have the account open long enough, you could deposit much more than $5000 without paying taxes on the interest.

  • Good points. However, it doesn't necessarily depend on whether or not you have opened an account. Theoretically, you can open a TFSA account years from now and use all the contribution room entitled to you that has grown from $5000 in 2009 with $5000 added every intervening year. – fideli Apr 12 '11 at 20:52
  • @fideli Interesting... I never knew. – Sivvy Apr 13 '11 at 13:16

There is a tax of 1% per month on the excess. The explanation is on the CRA website.

  • 1
    From the link :"If, at any time in a month, you have an excess TFSA amount, you are liable to a tax of 1% on your highest excess TFSA amount in that month. " So, that seems like 1 % compunding. Not very friendly – Victor123 Apr 17 '11 at 18:24

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