Annual TFSA Contribution Limit Increases to $6,500 in 2023

The Canadian government has introduced a number of different ways for Canadians to save and invest their money. One of the most popular is the Tax Free Savings Account (TFSA). The TFSA was first introduced in 2009 as a way for Canadians over the age of 18 to set aside money, in a special account, tax-free.

What Is a TFSA?

What makes a TFSA account different from a Registered Retirement Savings Plan (RRSP)? With an RRSP, contributions are made pre-tax. You do not pay any tax on earnings generated in the RRSP until you cash in, withdrawal, or receive payments from the RRSP.

With a TFSA you do not pay tax on interest income, dividends, or capital gains made from investments in the TFSA. If you invest $5,000 in a stock and you sell it for a $25,000 capital gain, you keep all of that money, tax free.

At the same time, because contributions to the TFSA are with after-tax dollars, you cannot claim any losses to reduce your income tax.

What Is the Annual TFSA Contribution Limit?

Like an RRSP, a TFSA has an annual contribution limit. Where a RRSP contribution depends on how much you earn, for TFSAs, the amount is the same for all Canadians.

The TFSA dollar contribution limit can change from year-to-year, though. That’s because it’s indexed to inflation and rounded to the nearest $500. When TFSAs were first launched in 2009, the maximum amount you could contribute annually was $5,000. The contribution limit was raised to $5,500 in 2013 and increased to $6,000 in 2019.

Thanks to rising inflation, the annual contribution limit for TFSAs rose to $6,500 on January 1, 2023. This means Canadians can save and invest an additional $500 per year in their TFSA. If you decide to open a TFSA in 2023 or already have one and have never contributed, you can deposit a total of $88,000. Any unused TFSA contribution room rolls forward from one year to the next.

You can invest the money in the TFSA in the same way as those permitted in an RRSP. This includes cash, mutual funds, securities on approved stock exchanges, guaranteed investment certificates (GICs), bonds, and certain shares of small business corporations.

It might be tempting to make a TFSA contribution above the maximum limit, but if you do, you’ll be hit with a penalty tax of 1% per month on the excess funds.

What if you make a withdrawal from the TFSA? Withdrawals can be replaced but you cannot recontribute the same amount until the following calendar year. For example, if you withdraw $2,000 from your TFSA today, you will not be allowed to recontribute that $2,000 until January 1 of the following year. Then, you can add that $2,000 to the TFSA plus the annual TFSA limit, which again, in 2023, is $6,500.

Sharp Asset Management for Your Retirement Planning

TFSAs are an excellent way for Canadians to invest their money and avoid paying taxes on any gains. If you live in Toronto, Mississauga, or anywhere in the GTA and are thinking of opening an account and want expert advice of TFSAs, the private wealth management team at Sharp Asset Management can help.

At Sharp Asset Management our clients have direct access to a dedicated investment professional that provides them with personalized service, including extensive quarterly reporting. This also allows us to respond more quickly to changing client needs.

All of our wealth management investment counsellors are charter financial analysts, the highest level of achievement, and have over 10 years of experiencing managing portfolios. This differs from major financial institutions which typically rely on junior analysts.

Sharp Asset Management is not affiliated with any financial institution, securities firm, or mutual fund company. Nor do we earn any commissions or fees on investments we choose for our clients. To learn more about investing with Sharp Asset Management, contact us today.