CRA Announces $7,000 increase to TFSA in 2025
By Brian Belcourt, Springwater News Reporter
Dec. 2, 2024 – The Canada Revenue Agency announces that there will be a $7,000 contribution limit increase in Tax Free Savings Account contribution room for 2025. Starting January 1,2025 Canadians 18 years old or older, will be able to contribute an additional $7000 into their Tax-Free Savings Account. The $7000 increase matches the increase in 2024.
The Tax-Free Savings Account (TFSA) was introduced in 2009 with a contribution limit of $5,000. Each year since the Canadian Revenue Agency announce what the increase will be for the following year. The contribution limits have been: 2009 to 2012 was $5,000, 2013 and 2014 was $5,500, 2015 was $10,000, 2016 to 2018 was $5,500, 2019 to 2022Â was $6,000, 2023 was $6,500, 2024 and 2025 is $7,000.
Canadians 18 years old or older are eligible to contribute toward a TFSA. If you were 18 years old in 2009 and have not contributed towards a TFSA,  your contribution room would be $102,000 in 2025.
If unsure how much contribution room you have to maximize your contribution, you can find out by using your CRA account or calling tax information phone service at 1-800-267-6999. It is important not to over contribute as you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount remains in your account.
Depending on the type of investments held in your TFSA, you can generally withdraw any amount from the TFSA, at any time. Withdrawing funds from your TFSA dose not reduce the total amount of contributions you have already made for the year.
Withdrawals, excluding qualifying transfers and specified distributions made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year. If you decide to replace or contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. If you re-contribute but don’t have contribution room, you will have over contributed to your TFSA in the year. You will be subject to a tax equal to 1% of the highest excess TFSA amount in the month and each month the excess remains.
Which plan should I contribute to first – my RRSP or TFSA? Generally, RRSPs are a good choice for longer term goals like retirement, while TFSAs work better for more immediate ones because you can access your savings for things like vacations or renovations. But TFSAs also offer tax advantages, so don’t overlook yours as a vehicle for your retirement savings. If you expect to be in a higher marginal tax rate in the future, it might be a good idea to contribute to your TFSA now, when you’re paying less income tax, and an RRSP later, when you’ll be subject to a higher marginal tax rate and your RRSP contribution will generate more income tax savings. Your advisor can work with you to help determine a strategy tailored to your needs and circumstances.
There are two ways a TFSA can help you grow your savings faster than an ordinary savings account or a non-registered account.
- Tax-Free earnings, investments grow tax-free while inside the TFSA, so you don’t have to include any earnings on your Canadian income tax return.
- Tax-free withdrawals can be made from the TFSA at any time for any purpose. Withdrawals are generally not considered as a taxable income and are not subject to tax.
Should I invest in a RRSP or Tax-free savings account? The answer is that it depends on your situation as both have tax advantages. A RRSP can also have tax liability as 100% of withdrawals are taxed as income, for example high income earners in retirement will pay higher tax rate on withdrawals and withdrawals could also trigger old age security claw backs. It is best to get advice from your financial advisor or accountant when deciding were to invest.
In conclusion your TFSA contribution room should be maximized if you currently have non-registered investments, this will help you pay less tax on capital gains.