I’ve had shoppers ask if a dividend paid inside their TFSA counts as a contribution. Others suppose they lose contribution room once 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 precise factor and getting tripped up by essentially the most misunderstood account within the nation.
Since its introduction in 2009, the TFSA has develop into a core a part of monetary planning. However regardless of its reputation, misconceptions abound—they usually’re costing Canadians actual cash.
Under are the seven questions I discipline most ceaselessly, every launched with an anonymized consumer state of affairs so you’ll be able to see how the parable reveals up in observe—and find out how to deal with it.
1. “If my TFSA earns dividends or capital beneficial properties, do these quantities depend as new contributions?”
Consumer 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 revenue from dividends, curiosity or capital beneficial properties has zero influence in your contribution room. The room is created solely by government-set annual limits + unused house 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 folks contributing $20,000 or $30,000 (or extra) in a single yr?”
Consumer 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 foundations.
Reply: TFSA contribution room relies in your age—you begin accumulating it within the yr you flip 18. Unused room carries ahead perpetually, 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, giant lump sums are completely reliable in case you’ve banked the house. 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 are usually not all the time updated.)