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