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TFSA Withdrawals
Here is the basic information regarding withdrawals from a tax-free savings account:
 | Withdrawals will create additional contribution room equal to the amount of the withdrawal (yes, including any gains included in that withdrawal) in the next year (not in the year of the withdrawal). The contribution room will also be increased by the normal annual TFSA dollar limit. | ||||||
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Income earned in and withdrawals from a TFSA will not affect
eligibility for federal income-tested benefits and credits such as
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| Any fees paid related to the TFSA will not be tax-deductible. | ||||||
| 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. |
TFSA Withdrawal Example
| Unused contribution room Dec of year 1 | $ 9,000 |
| Withdrawal Dec of year 1 | 80,000 |
| TFSA dollar limit year 2 | 7,000 |
| Contribution room Jan 1 year 2 | $96,000 |
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 Golombek 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!
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Revised: November 29, 2023