Five Steps To Calculating 2015 TFSA Contribution Room

A new version of form RC343 has been released by the CRA to calculate TFSA contribution room for 2015, taking into account the new 2015 contribution limit of $10,000.

The new form is available here.  Here’s how the calculations work:

1. Start with your TFSA contribution room as of January 1, 2014

2. Subtract any TFSA contributions made in 2014

3. Add any TFSA withdrawals made in 2014

4. Add $10,000 (your new  TFSA contribution limit for 2015)

5. If you’ve already made TFSA contributions for 2015, subtract those

Here’s an example:

Joni had  TFSA contribution room of $12,000 as of January 1, 2014, including the $5,500 of new contribution room for 2014. She made a $10,000 TFSA contribution in 2014 and withdrew $15,000 that same year. She has not made any contributions in 2015 yet.  Following the steps outlined above, her 2015 TFSA contribution room is:

1. $12,000

2. - $10,000

3. + $15,000

4. + $10,000

5. - $0

Total: $27,000

Beware of TFSA Traps:  The biggest trap, other than holding non-registered investments outside a TFSA when there is contribution room available, is recontributing to the TFSA in the same year as the withdrawal is made. Withdrawals do increase TFSA contribution room, but not until the beginning of the following year.

In the example above, after her $10,000 contribution, Joni’s TFSA contribution room for 2014 was reduced to $2,000. Her $15,000 withdrawal did not open up contribution room until January 1, 2015. If Joni had re-deposited the $15,000 in 2014, she would have had a $13,000 excess contribution. All excess contributions are subject to a 1% penalty tax for each month they remain in the TFSA.

For these reasons, it’s important for wealth advisors to encourage their clients to seek their assistance or consult with a DFA-Tax Services Specialist before withdrawing money or recontributing it to a TFSA.