4

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???

2

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
1

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

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.