Giorgos asked an interesting question in the Tax Free Savings Account (TFSA) thread about how the contribution room of the TFSA will be calculated if there are gains in the account.  Basically, if you invested the $5,000 maximum in the first year and luckily turned a quick profit and withdrew the money, what would would be the new contribution room?  The answer surprised even me.

Here is the question again:

Lets say you put $5k into your TFSA, and you decide to invest them in some crazy options strategy (with a 1% of actually happening). Things happen the way you wanted and you end up with a total account value of $100k.  What’s going to happen to the gains? Your capital gains are tax free, but your contributions space is already full.  Question is, where does the $95k go? Do they let you keep those money in your TFSA, because they are from capital gains. What if I withdrew the money, what is the contribution room then?

I think that it may be safe to assume that all gains can remain in the TFSA (investment account) without any penalties.  The interesting question is the last one, what happens to the contribution room if the account is liquidated?  Coincidentally, I was browsing through the local newspaper, and a reader had a similar question for a financial advisor columnist (can’t remember his name).

The column stated (confirmed by Ed Rempel) that any amount withdrawn from the TFSA is available as new contribution room for the next year!  In the above scenario, if the $100,000 is withdrawn from the account, then $105,000 contribution room is now available for next year.  Personally, I would have assumed that only $5,000 would be available to be re-contributed, but this is a welcomed surprise.  However, the reverse is also true.  If you contribute/invest $5,000 to your TFSA which results in a loss of say $4,000.  If the remaining $1,000 is withdrawn, then the contribution room for the next year is $6,000.

This contribution room tidbit of information makes the TFSA even more attractive than it already was.  Personally, when the TFSA becomes available, I will more than likely be using it as an investment account instead of an emergency savings account.  I will be writing more on some my potential TFSA strategies in another post.


  1. Ed Rempel on June 23, 2010 at 4:58 pm

    Hi All,

    If anyone has received a letter recently about overcontributing to your TFSA, CRA has indicated that they will reverse the penalty if you write in.

    Apparently, about 70,000 Canadians overcontributed, which is a lot. Most were working with banks, which clearly meant they were not getting any advice.

    Many people did not realize that you only get new room the following year after a withdrawal. However, you can transfer a TFSA to a new financial institution without affecting your room.

    However, that may take longer than just cashing in your investments and moving them and might involve a transfer out fee, but transferring your TFSA is the right way to do it.

    If your overcontribution was innocent (not deliberate) and resulted from you now know the rules, when you receive a letter from them about the penalty, just write in quoting their reference number and explain what happened. Stress that it was innocent and that you did not know the rules (assuming that is the reason).

    CRA has indicated that they will routinely reverse these penalties, but they will do it on a case-by-case basis.

    The best idea is to send in the money for the penalty along with your appeal letter. They will refund it to you assuming they agree with your appeal. By sending in the penalty amount, you can avoid the risk of additional late fees and interest if they should disagree with you.


  2. FrugalTrader on June 23, 2010 at 10:45 pm

    Awesome, thanks for the heads up Ed!

  3. Steve on October 4, 2010 at 1:04 pm

    Is it possible to provide your spouse with inital TFSA contribution as well as any recontribution amount?

    Let’s say you provide your spouse with $5K for TFSA contribution in early 2010 (using up contribution room). Then in late 2010 the spouse withdrawals the $5K thereby, leaving recontribution room of $5K. Are you allowed to give them money for the recontribution room as well as the inital contribution?

  4. D. on April 27, 2011 at 4:14 pm

    I have my TFSA account with BMO, just pure savings account. And I have share trading account with questrade. Now I have finally “awaken” and decided that I should buy shares with my TFSA. Question: How do I do that with tfsa in BMO and trading account with questrade?

    • FrugalTrader on April 27, 2011 at 4:18 pm

      One thing you can do is transfer the savings to your trading account, but this will likely incur fees. A free way to do it is to withdraw from your savings at the end of the year, then contribute to your trading account in the new year.

  5. D. on April 27, 2011 at 4:22 pm

    Good point! I think I will take your second recommendations. Thanks for your advice.

  6. D. on April 27, 2011 at 4:27 pm

    I have another question:

    Say I have $15,000 with BMO TFSA savings account this year. At the end of this year, if I withdraw $10,000 from BMO and put it in questrade tfsa, in Jan 1 2012, can I put in another $5000 (new year’s room) with BMO TFSA savings account? Am I allowed to have 2 TFSA accounts with 2 different institutions?

  7. FrugalTrader on April 27, 2011 at 4:32 pm

    Yes, you can withdraw the $10k this year, then recontribute that amount + the new years contribution ($5k) on Jan 1, 2012 – so $15k total. I believe that you can have multiple TFSA’s, but make sure not to go over the allowable contribution amount.

  8. Dan on April 28, 2011 at 2:35 pm

    You can have multiple TFSA’s but you should just transfer from BMO to Questtrade not withdraw. A straifght transfer is easily done!

  9. Rob on November 7, 2011 at 2:55 pm

    Quick question – people have referenced way overcontributing to take advantage of tax free gains less the 1 % monthly penalty.

    If I want to put in say $50,000 into a self directed tsfa, which others have implied they have done, can I at my discretion, or will the financial institution be able to stop me?

    (then with the plan to invest in a stock at my risk that couldbe a 4-5 bagger and then just withdraw the 50,000 in a few month and pay the penalty)

  10. Rob on November 7, 2011 at 3:28 pm

    sorry – answered my own question. Any overcontribution gain loopholes have been closed :)

  11. Ed Rempel on November 8, 2011 at 12:15 am

    Hi Rob,

    That was a potential, high risk strategy. However, CRA implemented a new 100% tax on TFSA profits of overcontributions. If you make $100,000 profit, you will have to pay all of it to CRA.

    On the upside – the financial institution won’t stop you. On the downside – 100% tax is definitely a deterrent. :)


  12. Kiran Ramaswamy on January 16, 2012 at 3:00 pm

    This is a kinda old thread and I’m not sure if anyone is reading, but I’m curious to know whether there is any official word on whether or not the following strategy is legal / works:

    Say I were to just start my TFSA this year. I put in the currently available $20,000 in to some stocks. Since the market is kinda low right now, let’s assume that by the end of the year a fair amount of appreciation has occurred. The stocks, which I bought at the start of the year, are now worth $50,000.

    Can I “lock in” my extra TFSA room by doing an in-kind transfer of those TFSA shares into a standard investment account on Dec. 31, 2012, then re-contribute them Jan. 1, 2013?

    If I understand the logic correctly, this should mean that my contribution limit would forever be increased to $55,000 ($50,000 withdrawn + $5,000 from the next year), which is $30,000 higher than it should be. Seems like a smart move to make?

    And on the same note, lets say that instead of those shares increasing to $50,000, they tank to $10,000. If on Dec. 31, 2012 I withdraw those shares out and into a standard investment account, then on Jan. 1, 2013, the maximum I can contribute to my TFSA is now $15,000 ($10,000 withdrawn + $5,000 from the next year), which is $10,000 lower than it should be?

    If that’s the case, then it seems to me that it is very punishing to withdraw money from a TFSA if you are in a year where you are taking a loss – and conversely, it is highly profitable to do so if you are taking a gain.

    • FrugalTrader on January 16, 2012 at 3:03 pm

      Hi Kiran, what you describe is accurate. Whatever you withdraw from your TFSA you can redeposit the following year.

  13. KK on October 7, 2012 at 5:39 pm


    Please help me figure out my TFSA Contribution Room for Jan 2013. Details of my contribution and withdrawal since 2009 are as follows:

    Contributions: Withdrawals:
    Aug 2009 $5,000.00 Nov 2011 $5,000.00
    Jan 2010 $5,000.00 Feb 2012 $5,000.00
    Jan 2011 $5,000.00 Mar 2012 $1,400.00
    Jan 2012 $5,000.00 Sept 2012 $1,100.00

    Thank you very much in advance!

  14. FrugalTrader on October 8, 2012 at 2:05 pm

    @KK, technically you can redeposit what you have withdrawn. So in your scenario, you should be able to deposit, $12.5k along with your regular contribution. Might be best to confirm with a professional because if you over contirbute, CRA will ding you.

  15. SmithyCA on October 9, 2012 at 3:55 am

    @KK -.Call and confirm with CRA what your room was for 2011 and adjust for your 2012 transactions.

  16. Doreen Norris on January 3, 2018 at 2:16 pm

    How can I find out how much room I have in my TFSA to contribute in this year of 2018.
    That is how many dollars can I contribute. D. Norris with thanks.

    • FT on January 3, 2018 at 5:13 pm

      D, do you know how much you have contributed to and withdrawn from your tfsa in previous years ?

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