Why You Should Reconsider Your TFSA
If you are a Canadian resident and over 18 years, you can contribute up to $6,500 in 2023 ($6,000 in 2022) to a TFSA account. Unlike RRSP, they are not deductible but income in a TFSA is tax-free.
Note, if you are a US citizen, you may want to reconsider a TFSA account because they require extra filings to the IRS annually and are not protected under the Canada-USA tax treaty.
You can transfer funds directly from one of your TFSAs to another without affecting your contribution room limit. Be careful if you withdraw from one of your TFSAs and contribute later in the year to another or the same TFSAs, the contribution may be in excess of your TFSA contribution limit for the year.
The contribution room for the withdrawn amount does not open up again until the following year. In 2022, for example if the annual deposits are in excess of $6,000 being your contribution limit—even if part of that amount is subsequently withdrawn during the same year and the balance stays at or under $6,000—will be subject to an over-contribution penalty.
The cause of this error of over contribution to your TFSA in the year results is a 1% per month penalty.
If you plan to emigrate from Canada, you are not required to withdraw from your TFSAs and your TFSA income is subsequently not taxed in Canada. However, as a non-resident of Canada additional contributions are not permitted.
The above information is of a general nature only and should not be relied upon for specific situations. Call Marlies Y Hendricks, CPA at 416-766-3941 to discuss your best options and set up an appointment.