I’ve had shoppers ask if a dividend paid inside their TFSA counts as a contribution. Others suppose they lose contribution room after they make a withdrawal, or {that a} TFSA is just for short-term financial savings. These aren’t outliers; they’re on a regular basis Canadians attempting to do the correct factor and getting tripped up by essentially the most misunderstood account within the nation.
Since its introduction in 2009, the TFSA has turn out to be a core a part of monetary planning. However regardless of its reputation, misconceptions abound—and so they’re costing Canadians actual cash.
Under are the seven questions I discipline most often, every launched with an anonymized consumer state of affairs so you possibly can see how the parable exhibits up in follow—and find out how to deal with it.
1. “If my TFSA earns dividends or capital positive aspects, do these quantities depend as new contributions?”
Shopper situation:
Sarah holds $80,000 of the Vanguard All-Fairness ETF (VEQT) in her TFSA. In January, she notices a $1,200 money dividend and emails me: “Did I simply use $1,200 of contribution room?”
Reply: No. Funding earnings from dividends, curiosity or capital positive aspects has zero impression in your contribution room. The room is created solely by government-set annual limits + unused area from previous years + withdrawals made in a previous 12 months. Development contained in the TFSA is totally tax-free and doesn’t scale back future contribution capability.
2. “I assumed the restrict was $7,000 this 12 months. How are individuals contributing $20,000 or $30,000 (or extra) in a single 12 months?”
Shopper situation:
Mike, 35, has by no means contributed to a TFSA. After promoting a rental apartment, he desires to deposit $50,000 however worries that it breaks the principles.
Reply: TFSA contribution room is predicated in your age—you begin accumulating it within the 12 months you flip 18. Unused room carries ahead without end, and withdrawals made final 12 months return to you on January 1. Somebody who was 18 or older in 2009 and has by no means contributed now has about $102,000 of cumulative room (primarily based on Canada Income Company limits from 2009 to 2025).
So, giant lump sums are completely authentic if you happen to’ve banked the area. At all times confirm your private restrict by checking your CRA My Account and your individual information earlier than making the switch. (The CRA’s information will not be all the time updated.)
