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Koroll & Company Blog

Is it Time to Make Strategic TFSA Withdrawal Before the End of December?

[fa icon="calendar"] Dec 28, 2021 4:22:01 PM / by Allen Koroll

The year is almost over and that means you might need to make some last-minute decisions about your Tax-Free Savings Account (TFSA)

TFSAs began in 2009 and are a savings tool that allow Canadians 18 and over to earn tax-free investment income. Unlike certain registered savings plans, there are no limitations on what the funds in a TFSA can be used for.

TFSAs can be used alongside your RRSPs to save for retirement, they can be used to save for large future expenses, such as a house, trip, tuition, or car, or you can simply save money in a TFSA for some future expenditure you haven’t thought up yet. In short, you can use TFSAs for any savings goal.  

But there’s some important information about TFSAs you should know about before jumping in.  

Annual contribution room is the same for every Canadian 

Each year, there is a maximum amount of money each Canadian can put into their TFSA. This amount is the same for all Canadians who were 18 or older in any given year. If you were 18 or older in 2009, your total contribution limit is $81,500.  

Year  

Annual Contribution Limit  

Cumulative Contribution Limit  

2009 

$5,000 

$5,000 

2010 

$5,000 

$10,000 

2011 

$5,000 

$15,000 

2012 

$5,000 

$20,000 

2013 

$5,500 

$25,500 

2014 

$5,500 

$31,000 

2015 

$10,000 

$41,000 

2016 

$5,500 

$46,500 

2017 

$5,500 

$52,000 

2018 

$5,500 

$57,500 

2019 

$6,000 

$63,500 

2020 

$6,000 

$69,500 

2021 

$6,000 

$75,500 

2022 

$6,000 

$81,500 

 

If you have already started contributing to your TFSA and are not sure how much contribution room you have, you can find this information on your CRA My Account. 

You don’t lose contribution room  

If you do not use the full amount in a year, the unused amount is carried forward indefinitely. In addition, if you make a withdrawal from your TFSA, that amount will be added back to your contribution room in the following year.  

Contributions aren’t tax deductible 

Unlike RRSPs, when you put money in your TFSA, it is not tax deductible for income tax purposes.  

Withdrawals are tax free 

The key benefit of a TFSA over other savings tools is that any income earned in the account, such as investment income or capital gains, is tax-free, even when it is withdrawn.  

What does this mean for tax planning before the year-end?  

While there are no limitations on when you make contributions to your TFSA, there are some benefits to withdrawing funds from your TFSA before the end of the calendar year.  

Earlier we mentioned that when you withdraw funds, the amount will be added back to your contribution room in the following year.  

That means, if you’re planning to make a withdrawal in the coming months, whether it’s to make an RRSP contribution, renovate your home or go on vacation, withdrawing the funds before December 31 will allow you to re-contribute the withdrawn amounts as soon as 2022, instead of waiting until 2023.  

This is an excellent tax planning strategy for taxpayers who want to optimize the income earned on TFSA investments. Especially if you have little TFSA contribution room remaining.  

In addition, if you have large TFSA balances with high management fees but also have low liquidity, then it can be beneficial to arrange for fees to be paid once a year in December. That way you can withdraw the needed amount from your TFSA in December to pay for the fees and be able to recontribute the amount on January 1.  

For more information on tax planning with TFSAs before year-end, and after, contact Koroll & Company today. We look forward to discussing how these strategies, and others, can help you optimize your unique situation. 


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The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.



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Topics: Tax Tips

Allen Koroll

Written by Allen Koroll