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Unclear on withdrawal rules
January 3, 2009
10:49 pm
Peter
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May 15, 2007
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On HSBC's site:

"The amount withdrawn from a Tax Free Savings Account can be put back at a later date, without reducing your contribution room."

On TD's site:

"You can re-contribute amounts that you withdraw beginning in the year after you withdraw them."

If you put in $5,000 in a TFSA on January 5, and withdraw $5,000 on January 6, can you re-contribute $5,000 on January 7 without penalty?

This is important to clarify, since "a penalty will be assessed by Canada Revenue Agency (CRA) of 1% per month on your excess contribution".

Also, supposing you put in $5,000 in a TFSA on January 5, 2009, invest in stocks that grow to $30,000 on February 5, 2009, then withdraw $30,000 on February 6, 2009, is your re-contribution room for 2010 $10,000 ($5,000 for 2009 and $5,000 for 2010) or is it $35,000 ($30,000 for 2009 and $5,000 for 2010)? Conveniently, the examples given on the Department of Finance site do not cover this scenario ๐Ÿ™‚

January 3, 2009
10:59 pm
Peter
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Stupid me, I should have discovered this comprehensive TFSA guide from the CRA sooner!

If you put in $5,000 in a TFSA on January 5, and withdraw $5,000 on January 6, can you re-contribute $5,000 on January 7 without penalty?

According to this example, your contribution room is used up after deposits, and not replenished until the following year. You'd have to wait until 2010 to re-contribute the $5,000 without penalty (and you'll also be able to contribute an extra $5,000 since you'd get more room for 2010).

Supposing you put in $5,000 in a TFSA on January 5, 2009, invest in stocks that grow to $30,000 on February 5, 2009, then withdraw $30,000 on February 6, 2009, is your re-contribution room for 2010 $10,000 ($5,000 for 2009 and $5,000 for 2010) or is it $35,000 ($30,000 for 2009 and $5,000 for 2010)?

According to this page:

The TFSA contribution room is made up of:

  • your annual TFSA dollar limit;
  • any unused TFSA contribution room in the previous year; and
  • any withdrawals made from the TFSA in the previous year, excluding qualifying transfers.

Therefore, in the scenario above, you could contribute $35,000 the following year, since gains made within the TFSA and withdrawn add to your contribution room for subsequent years.

January 4, 2009
10:29 pm
Doug
British Columbia, Canada
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If you've already maxxed out your 2009 contribution room, any withdrawals you make in 2009 will incur the penalty. You can't recontribute until the following year.

What makes the TFSA a very bad savings vehicle is, far as I can tell, there's no mechanism for transferring money between one TFSA and another. That would count as a withdrawal from one and a contribution to another. Since you only get one flat, $5000 limit for all your TFSAs to adhere to, that effectively cancels any plans to say move money from an HSBC Direct TFSA to an HSBC Mutual Funds TFSA.

I think the government needs to allow an internal self-to-self transfer mechanism between TFSAs, so you're not "locked in" to one TFSA vehicle for a full year.

Cheers,
Doug

February 15, 2009
3:39 pm
jaBob
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There are no CRA restrictions on transferring between one TFSA and another, just as there are none for RRSPs. This is explicitly allowed, so that you have flexibility without having to withdraw the funds and wait until the following year to re-contribute.
(note: A withdrawal removes funds from a tax-sheltered account into the taxable world, while a transfer maintains the tax-free status of the funds)

There are however transfer fees charged by institutions to transfer from one of their TFSAs to one at another institution, to cover the administrative work involved.

I don't expect institutions would charge you to move funds between their own TFSAs as you're keeping the investment with them.

December 30, 2009
7:15 pm
Jim D
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We have done a TFSA to TFSA transfer from CIBC. They charged an exorbinant $125 transfer fee, eventhough the money was going to CIBC Renaissance mutual funds (but leaving the bank branch network). Client TFSA status was protected for the client and no withdrawal of TFSA money was recorded by CRA.

IMHO, this transfer out fee was a "rip-off" and that transfer out fees should be like GIC RRSP transfer out fees... i.e. in the $25 -- $50 range... Jim

December 31, 2009
4:20 pm
Scone
Guest
Guests

Peter said:

Stupid me, I should have discovered this comprehensive TFSA guide from the CRA sooner!

If you put in $5,000 in a TFSA on January 5, and withdraw $5,000 on January 6, can you re-contribute $5,000 on January 7 without penalty?

According to this example, your contribution room is used up after deposits, and not replenished until the following year. You'd have to wait until 2010 to re-contribute the $5,000 without penalty (and you'll also be able to contribute an extra $5,000 since you'd get more room for 2010).

Supposing you put in $5,000 in a TFSA on January 5, 2009, invest in stocks that grow to $30,000 on February 5, 2009, then withdraw $30,000 on February 6, 2009, is your re-contribution room for 2010 $10,000 ($5,000 for 2009 and $5,000 for 2010) or is it $35,000 ($30,000 for 2009 and $5,000 for 2010)?

According to this page:

The TFSA contribution room is made up of:

  • your annual TFSA dollar limit;
  • any unused TFSA contribution room in the previous year; and
  • any withdrawals made from the TFSA in the previous year, excluding qualifying transfers.

Therefore, in the scenario above, you could contribute $35,000 the following year, since gains made within the TFSA and withdrawn add to your contribution room for subsequent years.


I don't think that's how it works Peter. Gains made within the TFSA don't count as additional contribution room. In the example given (making $30,000 profit in one month from a $5000 investment, yeah right), you can withdraw $30,000 tax-free, but you can't re-invest that $30,000 the following year. The CRA will thank you for it though, because they will promptly begin charging a tax of 1% per month on that $30,000.

January 1, 2010
2:16 am
Dave
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Scone ( my CTFS guy )

You said it best in the first three words of your reply
" I don't think "

Peter is in fact correct !

January 2, 2010
2:45 am
Scone
Guest
Guests

No, only capital withdrawals can be re-contributed in subsequent years, not capital gain withdrawals. I forgive your rude and arrogant reply though as I don't expect someone of your limited brain-power to understand the difference.

January 2, 2010
3:16 am
Dave
Guest
Guests

You are just too funny Scone ! LMAO

January 2, 2010
3:28 am
Dave
Guest
Guests

For ( CTFS guy ) Scone

Canada Revenue Agency

http://www.cra.gc.ca

MAKING WITHDRAWALS :

Depending on the type of agreement that you have for your TFSA, you can generally withdraw any amount from the TFSA at any time and for any reason, with no tax consequence. For information on withdrawing from your TFSA, contact your TFSA issuer. The withdrawals will also not affect your eligibility for federal income-tested benefits and credits. For further information see Impact on Income-tested Benefits.

Withdrawals, excluding qualifying transfers, made from your TFSA in the year will be added back to your TFSA contribution room at the beginning of the following year.

You cannot contribute more than your TFSA contribution room in a given year, even if you make withdrawals from the account during the year. If you do so, you will be subject to a tax of 1% of the highest amount in the month, for each month you are in an overcontribution position.

Example
In 2009, Sarah invests $5,000 in a TFSA. Later that year, she withdraws $3,000 for a trip to Europe. Unfortunately, her plans change and she cannot go. Since Sarah has no unused TFSA contribution room left, she will have to wait until the beginning of 2010 to deposit the $3,000 in her TFSA. If she does so earlier, she will have overcontributed to her TFSA and will be charged a monthly tax of 1% on the overcontributed amount.
You don't need to report any contributions or withdrawals you made during the year on your individual tax return.

January 2, 2010
3:32 am
Scone
Guest
Guests

You are too stupid to realize that the material you posted proves my point. Stick to flipping burgers.

January 2, 2010
6:11 am
Peter
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May 15, 2007
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Guys, please. Argue all you want about the facts (in fact, I encourage you to :)), but don't insult each other. I will delete any further posts with personal attacks.

January 3, 2010
4:35 am
Dave
Guest
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Contributions :

Q. How much can I contribute to the TFSA per year?

A. Your contribution room each year is made up of the total of three amounts:

1. The TFSA dollar limit for the year (which is $5,000 for 2009 but will be indexed to inflation each year thereafter
and rounded to the nearest $500);

2. Any withdrawals made in the previous year, and

3. Any unused contribution room from the previous year.

Here's an example (assume no indexing):

- In 2009, Joe has contribution room of $5,000. He only contributes $4,000 to his TFSA. Therefore, he can
carry forward $1,000 to 2010.

- In 2010, Joe's contribution room becomes $6,000, which is made up of $5,000 (2010 dollar limit) + $1,000
(2009 unused contribution room). In 2010, Joe does not contribute at all to his TFSA and withdraws $2,000
from it.

- In 2011, Joe's contribution room becomes $13,000, which is made up of $5,000 (2011 dollar limit) + $6,000
(2010 unused contribution room) + $2,000 (amount withdrawn in 2010).

There is no limit on either the amount of contribution room that can be carried forward or on the number of years the
amount can be carried forward. The TFSA also has no lifetime contribution limit.

January 3, 2010
5:04 am
Dave
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Post deleted

January 3, 2010
3:50 pm
Scone
Guest
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"Dave", has it dawned on you yet why the "plain vanilla" examples you keep cutting-and-pasting from the CRA website make no reference to how GAINS within the TFSA are treated vis-a-vis TFSA contribution room?

Post edited

January 3, 2010
8:02 pm
Dave
Guest
Guests

My final rebuttable ( hopefully ) regarding this issue.

" Withdrawals " on the CRA site do not differentiate between

a) the annual TFSA contributions up to a maximum of $5,000 per year
b) interest,dividends or capital gains made from the annual contributions

However it does state quite clearly that " withdrawals " made in any given year will be added back to your TFSA contribution room at the beginning of the following year.

Post edited

January 6, 2010
7:30 am
snork
Guest
Guests

If you wanted to transfer to another bank to get a higher rate and avoid paying the transfer fee ($50 for some banks), could you withdraw the amount (5000)on Dec 31, and deposit it on Jan 1 of next year in the other bank? Too bad I just thought of this now.

February 3, 2010
8:27 pm
Michael
Guest
Guests

snork said:

If you wanted to transfer to another bank to get a higher rate and avoid paying the transfer fee ($50 for some banks), could you withdraw the amount (5000)on Dec 31, and deposit it on Jan 1 of next year in the other bank? Too bad I just thought of this now.


I think you can, snork. Unless CRA stipulates that the contribution room created by withdrawals is strictly tied to a particular account (but would they do that?), you can withdraw the full amount from one account and deposit it into another next year without penalty. However, you lose the benefit of "transfer in kind". e.g., if you sell a mutual fund or a stock at the end of 2009 in one account only to buy it back the next year, you may have to wait for a "downturn" to do so or you'll lose way more than the transfer fee.

February 9, 2010
3:52 pm
KatCan
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February 9, 2010
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Thanks for the info guys.

The CRA does not allow you to add gains as contribution room. Accordingly, you can only contribute your yearly allowance, which at the moment is $5000, plus any eligable withdrawals made the previous year.

The key word to note is ELIGABLE. A withdrawal that reduces your contribution to below the allowable annual amount, will become eligable to be contributed again the following year.

So far, we have only had one year (2009) of TFSA existence. If you contributed and withdrew the maximum eligable allowance in 2009, you would therefore have $5000 more contribution room in 2010, for a maximum possible contribution room of $10,000.

It is understandable that there is some confusion because of the lack of information from the CRA on this new product, but the principle of contribution remains the same as for any other registered plan.

Below is another example from the CRA:

Example
(Assuming no indexing) In 2009, Carl is allowed to contribute $5,000. He contributed $2,000 for that year.

2009 TFSA dollar limit: .................$5,000
2009 contributions:.................. รขห†โ€™ $2,000
unused TFSA contribution room
available for future years ........ .... $3,000

In 2010, Carl does not contribute to his TFSA, but makes a $1,000 eligible withdrawal from his account.

2009 unused TFSA contribution room ......$3,000
2010 TFSA dollar limit........................ + $5,000
2010 unused TFSA contribution room
available for future years.......................$8,000

Carl's unused TFSA contribution room for 2011

2010 unused TFSA contribution room
available from previous year...................$8,000
2010 eligible withdrawal .....................+ $1,000
2011 TFSA dollar limit........................ + $5,000
2011 TFSA contribution room ..............$ 14,000

Hope this helps!:smile:

February 9, 2010
7:48 pm
my 2 cents
Guest
Guests

According to the information at http://www.tfsa.gc.ca , "Full amount of withdrawals can be put back into the TFSA in future years"... NOT just withdrawals of the principal amount. If you click on the brochure information on this website, an example with the title "Full Flexibility to Withdraw and Re-Contribute" shows Gillian contributing $30K (3K for 10 years), and withdrawing $40K ($10K investment income). It then states that she can contribute the $40K back in future years. Therefore, according to this, ALL withdrawals are able to be re-contributed in future years.
Scone: If you know that this government brochure is in error, you may want to contact them, but in the meantime, you owe Dave a huge apology. In future, you may want to think for a couple seconds before calling someone else stupid and having limited brain-power.:wink:

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