TFSA Withdrawal Rules: Tax, Benefits and When Room Comes Back

Depending on the type of investments you hold, you can generally make a withdrawal from a Tax-Free Savings Account (TFSA) at any time, for any reason, and it is tax-free as long as the account has no excess amount, non-resident contribution or non-permitted investment. The catch is timing: the amount you withdraw is added back to your contribution room only on January 1 of the next calendar year, so putting it back sooner uses other unused room. The account’s other features, from contributions to what it can hold, are in the complete TFSA guide.

TFSA withdrawal rules at a glance

Do you pay tax on a TFSA withdrawal, and do you report it?

Your TFSA issuer must report all the withdrawals you make during the year to the CRA by the end of February of the next year, which is how the CRA adjusts your contribution room for the new year. A T4A slip (box 134) comes up when a trust TFSA pays a beneficiary more than the account’s value at the date of the holder’s death, which what happens to a TFSA when you die explains.

Tax can still apply in some situations, such as an excess amount or trading like a professional trader, whose income can be taxed as a business; do you pay tax on a TFSA? explains each.

Do TFSA withdrawals affect OAS, GIS, EI or other benefits?

The income you earn in a TFSA and the amounts you withdraw don’t affect these federal benefits or your eligibility for these federal credits:

• Old Age Security and the Guaranteed Income Supplement
• Employment Insurance benefits
• the Canada child benefit
• the Canada workers benefit
• the Canada Groceries and Essentials Benefit (formerly the GST/HST credit)

The CRA’s statement is about federal benefits and credits; for Ontario’s programs, see ODSP and OSAP.

RRSP withdrawals are different: you generally have to pay tax when you receive payments from an RRSP; see the RRSP withdrawal rules and, for OAS, the OAS clawback calculator.

When does TFSA room reset, and when can I put withdrawn money back?

How a withdrawal comes back as room:

• The amount you withdraw is added back to your room on January 1 of the year after the withdrawal.
• The whole amount withdrawn is added back, including growth, so withdrawing a gain adds more room than the contributions used.
• Re-depositing the money before then counts as a new contribution, which is an excess unless other unused room covers it.
• A direct transfer between your own TFSAs is not a withdrawal and does not change your room.

A withdrawal doesn’t immediately create new contribution room, so it doesn’t free up room before January 1. You can re-contribute some or all of a withdrawal in the same year if you have available contribution room; if you don’t, it is an over-contribution, and the worked example on the room page shows what that costs.

The TFSA penalty calculator works out the tax and covers withdrawing an excess.

Your available contribution room applies across all your TFSAs, so withdrawals from each of them are added back to the same room (having more than one TFSA).

Living outside Canada changes when withdrawn room can be used again. A non-resident can keep a TFSA and withdraw from it without Canadian tax, but gets no new room for a full year of non-residency, and a contribution made while a non-resident is taxed at 1% a month until it is withdrawn in full or residency resumes. The room page’s section on newcomers and non-residents has the full rules.

Does it matter if I withdraw in December or January?

A withdrawal is added back on January 1 of the year after the one it is made in, so how long you wait depends on when in the year you withdraw.

How much room comes back if my investments went up or down?

What comes back is the amount you withdraw, not the amount you contributed: you regain the same amount as new contribution room, and a loss inside the TFSA doesn’t count as a withdrawal and is never added back.

While the money stays invested, changes in its value don’t affect your room either; see what doesn’t use or create room.

How do I take money out of a TFSA?

You withdraw through the financial institution that issued your TFSA; contact it or check its website to find out what options are available. When you can withdraw depends on the type of investments you hold.

A TFSA savings account, which the CRA calls a deposit TFSA, is held with a bank or credit union and works like a savings account or a guaranteed investment certificate (GIC). If your TFSA is locked into an investment for a specific period of time, you may need to discuss options with your issuer, and GICs in a TFSA covers term GICs.

Can I close my TFSA?

You may close your TFSA if you no longer wish to have it. To close it, you contact your TFSA issuer, withdraw all remaining funds and ask for the account to be closed, and the amount you withdraw is added back to your room on January 1 of the next calendar year. If the account is locked into an investment for a specific period of time, the issuer may charge a penalty or fee for closing it.

What if the money is going to another TFSA, an RRSP or FHSA, or a home?

• Another TFSA: A direct transfer between your own TFSAs, arranged by the institutions, has no effect on your room; withdrawing the money yourself and depositing it elsewhere is a new contribution that uses room, and the withdrawal is added back only on January 1 of the following year. How to transfer a TFSA has the steps.
• An RRSP or FHSA: moving money from a TFSA to an RRSP or FHSA is covered in how to transfer a TFSA.
• A home: FHSA vs TFSA vs RRSP for a first home compares the accounts, and using your TFSA for a down payment covers the TFSA route.

Other TFSA questions are answered on the TFSA hub.