TFSA Limit Increased from $5,500 to $10,000
- Update April 27, 2015: The Canadian government published an official news release that Canadians can immediately take advantage of the proposed $10,000 Tax-Free Savings Account contribution limit.
- Update April 23, 2015: The budget bill has not passed yet and must be passed in order for the TFSA increase to be approved and become law. So, I’d wait for Canada Revenue Agency’s Tax-Free Savings Account page to be updated before contributing that $4,500 amount.
If you were at least 18 years old back in 2009, and you have never contributed to a TFSA, you would have accumulated $41,000 contribution room.
- Each year from 2009 to 2012 allowed for $5,000 contribution room.
- Each year from 2013 to 2014 allowed for $5,500 contribution room.
- This year started off with a contribution room of $5,500, until the announcement on April 21, 2015, that it as now be raised to $10,000. Going forward, each year, there will be $10,000 TFSA contribution room until further notice.
$10,000 maybe a lot for some people, and not everyone have the extra cash to invest that much. But we all need to start somewhere.

Photo Credit: kenteegardin from SeniorLiving.org via Compfight cc
Look within yourself and learn from experience to discover your unique investing style. Are you the type to put away a set amount every month, dollar-cost averaging, say $500 into the market via an ETF? One could do the same with individual stocks, except you might want to accumulate at least $1000 before investing to keep costs low. Banks typically charge $10 for each trade, which is about a 1% cost.
You Don’t Have to Invest $10,000 All At Once
There’s no one forcing you to contribute the $10,000, but any gains you get from a TFSA is tax-free, so it’d be illogical not to use it.
If you plan to put some funds in interest-producing vehicles, you can put that in a TFSA since interests are fully-taxed in the non-registered account. However, you’ll have to decide whether you save more taxes by placing interest-producing vehicles into a TFSA or if you put ETFs or stocks in a TFSA.
Of course, you can always create multiple TFSAs for the different types of investments. Just remember that the total contribution amount is still $10,000 for the year.
Contribute to the TFSA according to your own situation
I only hold stocks, including real estate investment trusts or REITs, and cash in my portfolio. REITs pay distributions (instead of dividends), and a part of that is return of capital, which reduces the adjusted cost base.
So that when you sell the units later, you experience a higher capital gain. The return of capital portion is different for each REIT and you need to look at the company website to find out the exact percentage.
If you want to avoid the tax hassle to calculate how much tax is needed to be paid for the distributions and for realized capital gains from an REIT, then you can consider buying REITs in the TFSA or RRSP. This situation gets more complicated if you’re reinvesting the distributions for a discount.
A TFSA is more flexible compared to a RRSP because you can take out and use the monthly income anytime if needed. And you can contribute the withdrawn amount in a new calendar year to continue the tax-free growth. Learn more how the TFSA works via this government website.
Here’s a Guide to Investing in REITs. Personally, I only invest in public eREITs because information of each publicly-traded REIT is readily available on its website, and there’s liquidity to sell the units quickly on the market if I wish to.
I also place some Canadian dividend growth stocks in my TFSA, including the Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Enbridge Inc (TSX:ENB)(NYSE:ENB).
Currently, I also have BP plc (NYSE:BP) in my TFSA. BP pays foreign dividends with no withholding tax.
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Disclosure: I am long all stocks mentioned in the article at time of writing.Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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I really think that the TFSA is a great savings vehicle, especially if you are able to max it out each year. After contributing to RRSP, the TFSA is always my next stop. We used it as a tool when we were saving to buy a house.
Jess, absolutely. The general consensus seems to be to max out the TFSA first if you’re at the low tax bracket ($40,000 and under). However, it also depends on what you’re investing for.
If you’re investing to buy a car for example, it’d make more sense to save up in the TFSA because you can take out the money anytime. That’s not so for the RRSP. Just remember that after you take out the dollars from the TFSA, you can’t put it back in until the next calendar year, unless you had more capacity to begin with.
However, I believe first time home buyers can take out up to a limit of $25,000 from the RRSP, and also a certain life-time limit for education purposes.
If one is saving for retirement, the TFSA and RRSP are both good vehicles.
PIE
That’s a really good point about needing to wait until the next calendar year to return money that you have withdrawn from your TFSA. My understanding is that the penalty for over contribution is quite stern. And I really feel like this could be an easy mistake to make. Thanks for your comment!
Jess, yes, it’s very important to contribute to the TFSA in the next calendar year if you withdrew it from it this year, but you have no more capacity left for this year. I know someone that got dinged $700 for over-contribution due to this rule.
The lesson? Track your contributions and how much contribution room you have left.
PIE
Yikes! That would be an awful surprise. I can’t imagine being dinged $700!
I love the TFSA and it’s where I’m trying to stash my Canadian dividend growth stocks. Or, alternatively, I could also put my BHP’s, GSK, DEO, UL, etc because I don’t think any of those have withholding taxes.
Could you imagine the TFSA being able to hold US Dividend stocks without a withholding tax? Now that would open up a world of cool!
Steve,
Higher growth stocks (given the growth does materialize) should do better in the TFSA than slower growth. After all, we’re aiming to maximize the total return, unless you need the income right now.
To not get the withholding tax on the foreign dividends, one must make sure to buy from the UK listing. So, I believe Canadians investing BBL, GSK, DEO, and UL in the TFSA shouldn’t have withholding tax on the foreign dividends.
lol We wish! I don’t think the government would allow no withholding tax on US dividend stocks in the TFSA. They want us to use the RRSP so they can get their taxes when we take the money out! For investors at lower tax bracket, it might not make sense to contribute to the RRSP at all, but rather maximize TFSA and then non-registered/taxable. For example, I have a high growth, low yield US dividend stock in my TFSA — cuz the yield makes up such a small part of return.
PIE