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How Is TFSA Contribution room determined? Do ALL withdrawals increase the max?
July 3, 2021
11:12 am
smayer97
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(carrying on a conversation that stemmed from here:
https://www.highinterestsavings.ca/forum/eq-bank/regd-transfers-from-eq-bank/#p63956)

Ok, so the info for determining TFSA contribution room is shown here:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html

which for starter shows, max annual contribution for every year one is over 18 and a resident of Canada:
2009 - 2012 $5,000
2013 - 2014 $5,500
2015 $10,000
2016 - 2018 $5,500
2019 - 2021 $6,000

The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.

So the question is whether truly all withdrawals from a TFSA count towards the max limit.

July 3, 2021
11:20 am
smayer97
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There are 3 statements made by the CRA on the reference page:

The maximum amount that you can contribute to your TFSA is limited by your TFSA contribution room.

All TFSA contributions made during the year, including the replacement or re-contribution of withdrawals made from a TFSA, will count against your contribution room.
Note

Qualifying transfers, exempt contributions and specified distributions are not considered in the calculation of contribution room.

My understanding has always been that the second and third statement are qualified by the first, meaning that only contributions that fit into the annual max set by the indexed table above determine the max, so that the "All... withdrawals" part is qualified by that, i.e. "...is limited by your TFSA contribution room."

Others claim that the gains withdrawn from a TFSA also contribute to increasing the contribution room beyond the cumulative max above by interpreting the "All...withdrawals" at face value with no other constraint.

Why do I hold to the first interpretation? In my experience, the CRA tends to favour interpretations that favour the government to limit the amount of tax exemption one can qualify for.

The example I used in the other thread is if you withdrew $80,000 (which includes gains), your max contribution would still be $75,500 (max cumulative amount if you qualify from the beginning of TFSAs in 2009).

I would need to see evidence to the contrary to prove that the CRA is not doing this and allowing even gains beyond the cumulative annual max contribution.

Does someone have direct knowledge of which is the correct interpretation?

July 3, 2021
11:34 am
Bill
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If you go down the cra page your link goes to to "How to know your tfsa contribution room" you will see the 3 elements that make up your total contribution room and that Norman1 & AtaRed's previous info is correct.

The government info also says "Withdrawals will be added to your tfsa contribution room at the beginning of the following year." There's also a "Making or replacing withdrawals from a tfsa" page in the government info site, with examples, makes it very clear.

July 3, 2021
11:41 am
RetirEd
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I've spoken to CRA about this a number of times when moving money to avoid transfer fees, and it seems confirmed (as of my last call about a year ago) that:

1. Your initial contribution room for a year is set by the legislated amount, plus any unused room from previous years.

2. Any deposits you make during the year reduce the remaining deposits permitted FOR THAT YEAR.

3. Your earnings in the TFSA do not reduce your future eligibility room.

4. Any withdrawals you make increase your contribution room FOR THE NEXT YEAR by that amount. You can't re-deposit the cash in the same year if you don't have more room.

5. If you for some reason have NOT maxed out your contribution room, and make a withdrawal, you CAN re-deposit in the SAME year the lesser of:

- the remaining deposit room (and you can deposit the rest in a LATER year if there's more than that without reducing that later year's new-contribution eligibility)

- the amount withdrawn (if you have sufficient deposit room to deposit it all)

Note that this means that you never lose the deposit room that withdrawn earnings represent. That is, if you have a total TFSA balance larger than the total all-year allowance since TFSAs were created, and you withdraw it all, you CAN re-deposit that larger balance. Just not in the same year.
RetirEd

July 3, 2021
12:36 pm
smayer97
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Bill said
If you go down the cra page your link goes to to "How to know your tfsa contribution room" you will see the 3 elements that make up your total contribution room and that Norman1 & AtaRed's previous info is correct.

The government info also says "Withdrawals will be added to your tfsa contribution room at the beginning of the following year." There's also a "Making or replacing withdrawals from a tfsa" page in the government info site, with examples, makes it very clear.  

Actually the examples DO NOT make it clear at all because they DO NOT address the question I am asking.

July 3, 2021
12:45 pm
smayer97
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RetirEd said
I've spoken to CRA about this a number of times when moving money to avoid transfer fees, and it seems confirmed (as of my last call about a year ago) that:

1. Your initial contribution room for a year is set by the legislated amount, plus any unused room from previous years.

2. Any deposits you make during the year reduce the remaining deposits permitted FOR THAT YEAR.

3. Your earnings in the TFSA do not reduce your future eligibility room.

4. Any withdrawals you make increase your contribution room FOR THE NEXT YEAR by that amount. You can't re-deposit the cash in the same year if you don't have more room.

5. If you for some reason have NOT maxed out your contribution room, and make a withdrawal, you CAN re-deposit in the SAME year the lesser of:

- the remaining deposit room (and you can deposit the rest in a LATER year if there's more than that without reducing that later year's new-contribution eligibility)

- the amount withdrawn (if you have sufficient deposit room to deposit it all)

Note that this means that you never lose the deposit room that withdrawn earnings represent. That is, if you have a total TFSA balance larger than the total all-year allowance since TFSAs were created, and you withdraw it all, you CAN re-deposit that larger balance. Just not in the same year.
RetirEd  

Thanks for all that info but that info is only clear in what it addresses BUT if you look carefully NONE of it addresses the scenario I am raising... it is ONLY implied and open to interpretation that the CRA has NOT directly addressed.

If you look at 4 & 5 you will see that they are in tension and leave room for interpretation.

Again, another way to try to make the question clearer, if you max out all your TFSA contribution room, then have some gains, then withdraw all your TFSA money, including the gains, will you be able to re-contribute ALL the money INCLUDING the gains?

Again, until I see de facto proof to the contrary, I believe the 1st line of the TFSA max contribution room is a hard constraint, meaning the max is STILL the cumulative annual limits set by the CRA.

Most people, including many at the CRA, only think of general terms. So any withdrawal will give you back that contribution room the following year. BUT few if any think of the extreme.

I'd love to be proven wrong because that would be really good news. I am just not confident based on my many past interactions with the CRA.

So, does anyone have any concrete information to validate the interpretation one way or the other, NOT simply by what a CRA agent interprets (they have been wrong many times in the past)?

If nothing else, I will likely be finding out the answer to this at end of this year, into the next, because we are maxed out on 2 TFSAs (my wife & me) and I believe will have to move them to greener pastures, so I will have the opportunity to test this out (at least that is what I think ATM).

July 3, 2021
1:16 pm
file
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Personally I went back through my contribution room history in My Account and when I had to empty my TFSA stuff to pay off debt, the next year the contribution room exceeded what the maximum TFSA dollar limit (you're treating the added up TFSA dollar limits as a maximum TFSA contribution room) would have been at that time due to the profits in it.

I think ultimately though you'll just see when you do it.

July 3, 2021
1:53 pm
Bill
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As indicated, the gov't site says (more than once) "withdrawals will be added to your tfsa contribution room at the beginning of the following year".

That clearly answers your question in bold in post #6 as "yes".

The other info on the site, including some examples, indicate the same, whereas I've found no examples with recontributed withdrawals indicating the type of calculation you're suggesting, smayer97, have you found any for us to examine?

If it helps, your interpretation is the first time I've heard it, all the material I've ever seen about tfsa's has never indicated your interpretation, far as I recall.

July 3, 2021
2:11 pm
smayer97
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Bill said
As indicated, the gov't site says (more than once) "withdrawals will be added to your tfsa contribution room at the beginning of the following year".
 

As I have pointed out, that phrase, only taken in isolation, would mean that. BUT I submit that the first clause "The maximum amount that you can contribute to your TFSA is limited by your TFSA contribution room." is a constraint.

I would need to see evidence to the contrary to believe otherwise.

July 3, 2021
2:17 pm
smayer97
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file said
Personally I went back through my contribution room history in My Account and when I had to empty my TFSA stuff to pay off debt, the next year the contribution room exceeded what the maximum TFSA dollar limit (you're treating the added up TFSA dollar limits as a maximum TFSA contribution room) would have been at that time due to the profits in it.

I think ultimately though you'll just see when you do it.  

Now this could be an indication that my interpretation is incorrect. To be sure that people are understanding the nuance I am bringing up, let me ask...

Prior to when you emptied your TFSA, had you maxed out the CUMULATIVE max to that point, NOT the max for the individual year?
And the amount you pulled out, was it above this CUMULATIVE max (again not the max just for that given year)?
And were you then able to re-contribute over the CUMULATIVE max at that point in time (again, not just beyond the max for that given year)?

These are 3 VERY DISTINCT AND CRITICAL pieces of information.

Just to be clear, I am not denying that you do gain back contribution room. What I am trying to get to is whether gains can increase that room beyond the cumulative max?

July 3, 2021
3:03 pm
file
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I had not maxed it out, it was not above the cumulative limit, I have not contributed past that amount as of yet. I have a ton of contribution room remaining at this point which I'm working to use.

Here's my contribution room from 2012:

TFSA contribution room on January 1st, 2011:
$13,500.00

Minus contributions made in 2011:
$2,400.00

Unused TFSA contribution room at the end of 2011:
$11,100.00

Plus withdrawals made in 2011:
$4,114.59

Plus TFSA dollar limit for 2012:
$5,000.00

Subtotal of withdrawals plus TFSA dollar limit:
$9,114.59

TFSA contribution room on January 1st, 2012: $20,214.59

Using the annual dollar limits my contribution room for 2012, if following your "the maximum is the added up annual dollar limits", would have been $20,000.00 and it was slightly above that due to the withdrawal.

July 3, 2021
4:37 pm
Bill
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As you point out, you can only contribute up to your contribution room. No argument there.

On January 1 contribution room is increased by withdrawal amounts, i.e. total withdrawal amounts (e.g. $150,000, say), of the previous year.

July 3, 2021
5:04 pm
smayer97
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@Bill, yes, I understand the general principle of W/D being added to contribution room. I am looking for a more precise answer as to whether or not gains W/D can add to the cumulative max.

Seems like @file has an example that might help...

July 3, 2021
5:12 pm
smayer97
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file said
I had not maxed it out, it was not above the cumulative limit, I have not contributed past that amount as of yet. I have a ton of contribution room remaining at this point which I'm working to use.

Here's my contribution room from 2012:

TFSA contribution room on January 1st, 2011:
$13,500.00

Minus contributions made in 2011:
$2,400.00

Unused TFSA contribution room at the end of 2011:
$11,100.00

Plus withdrawals made in 2011:
$4,114.59

Plus TFSA dollar limit for 2012:
$5,000.00

Subtotal of withdrawals plus TFSA dollar limit:
$9,114.59

TFSA contribution room on January 1st, 2012: $20,214.59

Using the annual dollar limits my contribution room for 2012, if following your "the maximum is the added up annual dollar limits", would have been $20,000.00 and it was slightly above that due to the withdrawal.  

OK, this is useful information. Let me ask some clarifying questions:

Was the Jan 1, 2012 contribution room calculated by you or provided to you by the CRA?

If you qualified for full TFSA contribution room, not sure why your limit was only $13,500 in 2011. It should have been $15,000, as that limit is not dependent on anything else, unless you overcontributed the year before. Nevertheless, it does not seem to impact the net outcome of your example.

July 3, 2021
5:26 pm
file
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The information I provided is directly from the CRA My Account system. If you go into TFSA you can select "Contribution room" and then go per year to see what the system calculated. I did not overcontribute. The values are correct, it just requires looking at the prior history of years to see what happened as there were contributions and withdrawals. The year I posted just had the scenario you are wanting clarification on.

July 3, 2021
6:25 pm
smayer97
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@file thanks for confirming. So it does seem that ALL withdrawals increase the MAX contribution limit for the following year... so that even gains that are withdrawn can be put back in, over and above the set cumulative max.

That is great news. That gives me confidence to withdraw the full amount and personally transfer it to another FI without losing anything.

Thanks for helping.

Like I said, I will likely get the chance to try this this year end.

July 4, 2021
1:27 am
LK
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https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html#contributions

"The TFSA contribution room is the total amount of all of the following:
~the TFSA dollar limit of the current year
~any unused TFSA contribution room from previous years
~ any withdrawals made from the TFSA in the previous year"

"Depending on the type of investment held in your TFSA, you can generally withdraw any amount from the TFSA at any time. Withdrawing funds from your TFSA does not reduce the total amount of contributions you have already made for the year. Withdrawals, excluding qualifying transfers and specified distributions, made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year."

"If you withdraw the funds yourself and contribute the same funds to another TFSA, this transaction would not be considered a direct transfer and could have tax consequences. In this situation, the funds will be treated as a regular contribution which will reduce your TFSA contribution room for the year."

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributions.html

"Investment income earned by, and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years. For an example, see Example 1 – TFSA contribution room." [https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/examples-tfsa-contribution-room.html#xmpl1]

July 4, 2021
1:47 am
LK
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smayer97 said

So the question is whether truly all withdrawals from a TFSA count towards the max limit.  

Whatever you withdraw in a calendar year (eg 2021), you can only contribute the TFSA amount for the then-current calendar year (2022) plus any unused contribution room from prior years (2021 and prior), plus any withdrawals that you made in prior year (2021). .

"The TFSA contribution room is the total amount of all of the following:
~the TFSA dollar limit of the current year [2022]
~any unused TFSA contribution room from previous years [2021 and prior]
~ any withdrawals made from the TFSA in the previous year [2021 withdrawals]"

If you have questions specific to your facts that are not covered in the links above, then call the CRA to discuss your individual situation.

July 4, 2021
5:43 am
savemoresaveoften
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If your TFSA has $100k in it (which implies there are gains since the total contribution limit is less than that), you can withdraw $100k this year. Wait till next calendar year and deposit $100k back in with no issues (excl new contribution room from the new year).
This is fair (tax wise), plus simple and straight forward for CRA, FI and individual to report/track their TFSA each year.

This is inline with FILE reported in msg#11

July 4, 2021
8:00 am
Winnie
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I'm doing that every year for 10 years now and can absolutely firmly confirm, that if you max out all your TFSA contribution room in 2021, then have some gains, then withdraw all your TFSA money including the gains before Dec 31, 2021, will you be able to re-contribute ALL the money INCLUDING the gains in 2022 plus the annual TFSA dollar limit for the year 2022 ($6,000 or whatever that limit will be).

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