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RRSPs RRIFs and TFSAs   ->  Tax-free savings accounts (TFSAs)  -> Withdrawals

TFSA Withdrawals

Here is the basic information regarding withdrawals from a tax-free savings account:

bullet Withdrawals will create additional contribution room equal to the amount of the withdrawal (yes, including any gains included in that withdrawal) for deposits in the next year (not in the year of the withdrawal).
bullet Income earned in  and withdrawals from a TFSA will not affect eligibility for federal income-tested benefits and credits such as
bullet guaranteed income supplement (GIS)
bullet old age security (OAS)
bullet age exemption tax credit
bullet Any fees paid related to the TFSA will not be tax-deductible.
bullet In kind withdrawals can be made, with the investments being transferred to a non-registered account, or as a contribution to an RRSP, subject to available RRSP contribution room.  When in kind withdrawals are made, the value of the transaction will be the current market value of the investment.  This will be the contribution amount if the investment is transferred to an RRSP.  If the investment is transferred to a non-registered account, the current market value at time of withdrawal will be the cost basis for the non-registered investment.  Any subsequent capital gain or loss when the investment is sold will use this value as the cost basis.

Note that if your TFSA has had losses and you make a withdrawal, only the actual amount of the withdrawal increases the contribution room in the next year.  See the Jamie Golumbek article in the Financial Post about a court case related to this:  Judge says blame the bank, not the CRA, in latest TFSA overcontribution case.

If the maximum has been contributed to a TFSA, and then a withdrawal is made, no further amount can be contributed (without penalty) until the following year.  On January 1st of the following year, the withdrawal amount from the previous year will be used to increase your regular annual contribution room.

Amendments to the Income Tax Act in Bill C-47, which became law in December 2010, included rules to ensure that any withdrawals of amounts regarding deliberate overcontributions, prohibited investments, non-qualified investments, asset transfer transactions and income related to those amounts do not constitute withdrawals for TFSA purposes, and do not create additional TFSA contribution room.

Tax Tips:

     - Unless you are retired, you are usually better to withdraw money from a TFSA instead of an RRSP.

     - Don't accidentally overcontribute to your TFSA - you'll pay penalties!

Previous:

What is better - TFSA or RRSP?

TFSA Contribution Rules and Limits / Leaving Canada

Don't Overcontribute!

Unused Contribution Room

TFSA Investments - qualified, non-qualified, and prohibited

Next:

Asset Transfer (Swap) Transactions

Taxes Payable re TFSA

Marital Breakdown

Death of the TFSA Holder

Back to TFSA main page.

Revised: September 15, 2021

 

 

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