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How Much TFSA Contribution Room Do I Have?

how is rrsp contribution room calculated

by Guest Blogger on August 13, 2013

Since the inception of the Tax Free Savings Account (TFSA) in 2009, Canadian residents who are over the age of 18 with a social insurance number have been allowed to contribute up to $5000 on an annual basis. Anything less than $5000 is carried over to the following year. (2014 contribution limit is $5,500).

So for the year 2012, if you have never contributed to your TFSA and you are at least 21, you are allowed to contribute $20,000.

In a previous post on TFSA contribution room. if you were lucky enough to grow the $5000 to $100,000 in your Tax Free Savings Account (obviously this would not happen with a typical high interest savings TFSA ), and you take out $100,000, the following year, you will be able to re-contribute back the $100,000 in addition to the $5000 allotted for the following year.

Therefore, if you were profitable with your TFSA and you removed the monies from your TFSA, the “extra” contribution room you created stays with your TFSA account forever.

Sometimes though, it is difficult to keep track of the contribution room for the TFSA since one should also be wary of the over contribution penalty. Therefore, most people who have likely profited from the TFSA gains end up being more cautious and only contribute the “maximum” $5000 allotted annually.

What is the Over Contribution Penalty?

As you’re probably already aware, the Canadian Revenue Agency has some pretty strict taxation on over contributions to your tax free savings account. Anything in access of the allowed tax free contribution room is subject to a 1% penalty charged on a monthly basis on the highest excess tax free savings amount.

Therefore, if over contributed from August to December (5 months) by $2000 for the year, 1% of $2000 would be charged, which equates to $100 in extra taxes.

It makes sense to be cautious, but your tax free savings account contributions and withdrawals have been difficult to keep track of, this begs the question, how does one keep track of the TFSA contribution room?

How to Access Information about your TFSA Contribution Room

Although the Canada Revenue Agency is pretty good about letting you know how much unused tax free savings account contribution room you have, sometimes it is difficult to keep track, especially if Notice of Reassessments are done and the “explanation of changes and other important information” appears different in your reassessment.

For example, I noticed that this this year, all it said on my Notice of Assessment for 2011 regarding the tax free savings account was:

“A tax free savings

account allows Canadian residents, who are 18 years of age or older, to earn tax free investment income throughout their lifetimes…”

Last year, the Canada Revenue Agency had the courtesy to share the actual dollar amount that I could contribute.

There is one easy way of accessing important information you may need throughout the tax year, and that is to use the Canada Revenue Agency’s Quick Access tool.

To use Quick Access, all you need are:

  • Your social insurance number
  • Your Notice of Assessment (or Reassessment), specifically to access line 150 of the previous year’s tax return (which is your total income reported)
  • Your birth date

Quick Access also gives you information on:

  • Your RRSP contribution room for the current year
  • The GST/HST credit you are eligible for
  • Your eligibility for the Canada Child Tax Benefit
  • Your eligibility for the Universal Child Care Benefit

Once you input these numbers, you will be able to access the tax free savings account contribution room for the current year (not including the contributions already done in the current year). Because I cashed out my tax free savings account with a $4000 net gain in 2010, I did not realize that this extra $4000 would be preserved in my contribution room a few years later.

If you would rather speak to someone in person (and wait on hold of course), calling the Canada Revenue Agency’s Tax Information Phone Service (TIPS) can also provide you with the same information. The phone number for TIPS is 1-800-267-6999.

For those lucky enough to have extra contribution room for their tax free savings account, not keeping track of the extra contribution room can yield a pleasant surprise a few years later. For those who enjoy maxing our their tax free savings account contribution room, it’s like finding $5 in your pocket when you least expect it.

I have heard of people increasing their tax free savings accounts to much higher than the typical $20,000 with self-directed tax free accounts since 2009. It would be interesting to hear how readers have done with their TFSA’s.

About the Author. Clare is a 20-something who lives in beautiful (but expensive) British Columbia and has been working on her frugal living skills and fighting lifestyle inflation. She works to expand her DIY investment knowledge and hopes to enjoy financial independence one day. She enjoys reading personal finance books, freelance writing, but not so much arithmetic.

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Category: Bank

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