A Tax-Free Savings Account (TFSA) is an account with many benefits, but these benefits demand compliance. Any tax benefits the Canada Revenue Agency (CRA) offers are conditional, based on requirements you must meet to avoid unwanted attention. That doesn’t mean you avoid TFSA altogether, as the benefits far outweigh the compliance.
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Major red flags the CRA is watching for every TFSA holder
The single biggest compliance rule is to stay within contribution limits. The 2026 TFSA contribution limit is $7,000. If you turned 18 this year, you have a $7,000 contribution room, and from here onwards, it will keep accumulating depending on your contributions and withdrawals.
Most Canadians do not use a TFSA correctly. They treat it as a normal savings account where you can deposit any amount without worrying about a penalty. TFSA rules are different.
1. Multiple TFSA accounts don’t increase your contribution room
John opened three TFSA accounts, thinking that would increase his contribution limit. However, the CRA determines your contribution room per individual and not on the number of accounts. John’s cumulative TFSA contribution limit for all three TFSA accounts is $7,000 in 2026.
2. Withdrawals and redeposits count towards the contribution
The CRA reads TFSA transactions differently. Note: The TFSA contribution limit in 2025 was also $7,000.
Scenario 1: John deposited $6,000 in a TFSA in January 2025, withdrew $2,000 in April, and then redeposited $2,000 in June. John considers his TFSA balance to be $6,000 and thinks he has complied with the contribution limit. That is a mistake.
The way the CRA sees the transaction, deposits were made of $6,000 in January and $2,000 in June. John’s total TFSA contribution as of December 31, 2025 = $8,000. This breaches the $7,000 limit and exposes the $1,000 surplus to a 1% tax per month until John withdraws the surplus or has any unused contributions accumulated.
| Scenario 1 | Contribution | Withdrawal |
| January | $6,000 | |
| April | 0 | $2,000 |
| June | $2,000 | |
| 31-Dec-25 | $8,000 | $2,000 |
| 1-Jan-26 | $9,000 |
What happened to the $2,000 withdrawal?
This amount is added to John’s TFSA contribution room on January 1, 2026, increasing his contribution room to $9,000 ($7,000 + $2,000). TFSA contribution room is updated only on January 1. Every new deposit counts towards the contribution used. Be careful with the transaction.
A simple way to understand your TFSA contribution is to write it the way shown in the table. Do not rely on the CRA website, as the contribution room might not be updated.
Scenario 2:
John has two TFSA accounts. He contributes $6,000 in the first account in January, withdraws $3,000 in April, and deposits it in the second TFSA account. Even though John just moved money between his TFSA accounts, the CRA will read the transaction as a $6,000 contribution in January and a $3,000 contribution in April. Total contribution in 2025 = $9,000.
| Scenario 2 | Contribution | Withdrawal |
| January | $6,000 | |
| April | $3,000 | $3,000 |
| 31-Dec-25 | $9,000 | $3,000 |
| 1-Jan-26 | $10,000 |
If John wants to shift the money, he should ask the bank to make a direct transfer to another account. That way, there will be no withdrawal transaction.
3. Non-residents cannot contribute to a TFSA
The CRA offers TFSA benefits only to Canadian residents. So if you are a non-resident for income tax purposes, you cannot contribute to the TFSA even if you have unused contribution room. Any contribution made as a non-resident will attract a 1% tax per month until it is withdrawn.
How to make the most of your TFSA
The best way to use a TFSA is to keep it simple. Open only one TFSA account, contribute once, and invest that money in long-term growth stocks. Do not withdraw or switch between accounts, complicating transactions.
A long-term growth stock to buy in a TFSA is Celestica (TSX: CLS). Celestica has had a growth spurt in the last three years and has now become a relevant player in the artificial intelligence (AI) supply chain. It is making Ethernet switches for data centres, while expanding beyond Canada into Taiwan, Japan, and America. The stock will see short-term dips, but it is a stock to hold for the long term as the electronics manufacturer moves to original design manufacturing and onboards new clients.
