How to avoid running afoul of TFSA rules

There's more to staying onside than keeping to the $5,500 limit.

Matthew Elder 3 November, 2017 | 5:00PM

Unlike its considerably older cousin, the registered retirement savings plan, a tax-free savings account has no contribution deadline or mandatory termination date, and generally has fewer restrictions. But there are some points to consider before the end of the year in order to abide by the TFSA rules.

First, a review of how this tax-friendly vehicle works. You may contribute up to $5,500 to a TFSA each calendar year. As is the case with an RRSP, you can carry forward unused contribution room for future use. For example, if you have never contributed to a TFSA, as of 2017 you can immediately put in as much as $52,000 into an account, assuming you were 18 or over when the program was introduced in 2009. That total is based on annual limits of $5,000 from 2009 through 2012, $5,500 in 2013-2014, $10,000 in 2015, and $5,500 since 2016.

As with RRSPs, income earned within the account is sheltered from tax -- although within an RRSP, this is only a deferral, whereas in a TFSA it is a permanent tax break. Interest on loans taken out to fund a contribution are not tax-deductible. Eligible investments, for the most part, are the same for TFSAs as for RRSPs. Basically, these are stocks and other equity securities, bonds and other fixed-income securities, mutual funds, exchange-traded funds, cash and equivalents, and, in some cases, shares of private companies.

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Matthew Elder

Matthew Elder