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 making an attempt to do the fitting factor and getting tripped up by essentially the most misunderstood account within the nation.
Since its introduction in 2009, the TFSA has turn into a core a part of monetary planning. However regardless of its recognition, misconceptions abound—they usually’re costing Canadians actual cash.
Beneath are the seven questions I subject most regularly, every launched with an anonymized consumer scenario so you possibly can see how the parable exhibits up in apply—and easy methods to deal with it.
1. “If my TFSA earns dividends or capital positive factors, do these quantities depend as new contributions?”
Consumer state of affairs:
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 revenue from dividends, curiosity or capital positive factors has zero affect in your contribution room. The room is created solely by government-set annual limits + unused area from previous years + withdrawals made in a previous yr. Progress contained in the TFSA is totally tax-free and doesn’t cut back future contribution capability.
2. “I believed the restrict was $7,000 this yr. How are individuals contributing $20,000 or $30,000 (or extra) in a single yr?”
Consumer state of affairs:
Mike, 35, has by no means contributed to a TFSA. After promoting a rental rental, he needs 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 yr you flip 18. Unused room carries ahead ceaselessly, and withdrawals made final yr 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, massive lump sums are completely reliable for those who’ve banked the area. All the time confirm your private restrict by checking your CRA My Account and your personal data earlier than making the switch. (The CRA’s data aren’t at all times updated.)
