TFSA limit change takes effect immediately, Ottawa clarifies

Canadians don't need to wait for the budget to be passed before taking advantage of the TFSA changes announced in it, officials at the Canada Revenue Agency and Finance Department said Friday.

Earlier this week, a proposal to hike the annual limit of how much a taxpayer can contribute to a TFSA to $10,000 was a central plank of the Tory's election budget. Under current rules, someone can only put $5,500 a year into the savings vehicle, and are subject to an overcontribution penalty of one per cent a month on every dollar if they go over that limit.

So technically, someone who topped up their TFSA by an extra $4,500 immediately after the proposal was announced may theoretically face thousands of dollars in penalties come tax time for contributing based on the higher limit.

But the tax agency clarified in a release Friday that there's no danger of that happening, and no need to wait for the budget to become official before planning accordingly.

"Financial institutions may immediately allow existing and new account holders to contribute up to the proposed maximum," the CRA said in a release co-signed by Finance Minister Joe Oliver. "The CRA will continue to work with financial institutions to ensure a smooth implementation of this new proposed measure."

Although technically, the measure is subject to parliamentary approval (which hasn't happened yet) the CRA said it is administering the measure on the basis of the budget announcement, which it says is "consistent with its standard practice."

"Canadians can immediately start contributing to their TFSA up to the proposed $10,000 annual contribution limit," the agency confirmed in its statement.