Log In
Register
Home
Topic RSS
Facebook
Twitter
Email this9:57 am
October 18, 2014
Offline
Here's a hypothetical scenario:
Say I have $25 000 in a TFSA. I've used up my $5500 for 2014 and made no withdrawals up to this point. My carry over limit is 0, so my contribution room for 2015 sits at $5500. That's a decent enough amount of money, but let's say I want more space because I have another $15 000 sitting in a regular savings account. What is stopping me from withdrawing 15k on or slightly before Dec 31 from the TFSA to expand my contribution room for the new year from 5500 to 20 500? I would essentially transfer the money from the TFSA to one of my other accounts for a few days and put it back in early 2015, but also including the $15 000, thus fattening up the TFSA.
In short, this is my question: can you purposely and intentionally expand your contribution room by withdrawing a large amount from your TFSA late in the year (ie. withdraw December 31 and re-contribute Jan 1)?
Technically it is still a withdrawal, but are there any rules for this short of idea? It sort of seems like cheating the system, but is it allowed? With a simple transfer you can double or triple your contribution room (or more) and do it year after year if you have the funds available.
Thanks for any insight!
10:39 am
December 23, 2011
Offline
I am doing similar. TFSA GIC matured, went to TFSA savings account, then to regular savings account in October 2014. I know I could have left it in the TFSA savings longer but I had to mail a form in to move the funds from TFSA savings to regular savings. So that will increase my 2015 contribution allowance. I will wait to verify "My Account for Individuals" in March to ensure the financial institution reported the withdrawal and that my contributing room is reflected accordingly. The only reason I am doing it this way is to avoid a $50 transfer fee as I plan no longer do TFSA GICs at a credit union and want to take advantage of Peoples Trust 3% TFSA savings account. Keep in mind that I will collect interest for 4 months that will not be tax free. All of my other TFSA investments are with a discount broker and once I phase out all TFSA GICs, all of my TFSA funds will be liquid.
I assume the 15000 you want to do similar with will be moved to a "better return" investment?
11:40 am
October 18, 2014
Offline
Hi jbrown,
In your situation (assuming no growth or interest earned), come January you're allowed $30,500 in your TFSA (25,000 + 5,500 new contribution, assuming gov't doesn't raise limits). If you withdraw 15,000 in December, you're then allowed to contribute 20,500 in January which would be adding to your 10,000 balance on Dec 31, so the same total of $30,500. There is no way to "cheat" the system, sorry.
11:41 am
June 6, 2014
Offline
No, this is not how a TFSA works.
In 2014, you should have $26,000.00 in contribution room. Suppose you have put $26,000.00 into your TFSA, you would have it completely filled, so $0.00 contribution room left in 2014.
If you withdraw $26,000.00 on Dec. 31, 2014, then on Jan. 1, 2015, you will have $26,000.00 + $5,500.00 (2015 new room) = $31,500.00 in contribution room.
If you put the $26,000.00 back in on Jan. 1, 2015, that would leave you with just the new $5,500.00 of contribution room left, so you could put that amount in to bring your total amount in TFSAs up to $31,500.00.
By doing this you do not "gain" anything, you are not doubling your contribution room or anything like that. What you're proposing is withdrawing $15,000.00 to make your contribution room $20,500.00 for 2015. That's correct, but then you suggest you could re-deposit the $15,000.00 you pulled out, plus an additional $15,000.00 you have sitting around (so $30,000.00 total). $30,000 will not fit into $20,500 of room.
The ONLY way to "increase" your contribution room would be the following scenario:
You've got $26,000.00 in your TFSA in ABC Company stock.
ABC Company stock doubles in value overnight!
Your ABC Company stock is now worth $52,000.00!
You sell your stock, then transfer the $52,000.00 out of your TFSA (emptying it out).
You would then have $52,000 + $5500 contribution room in 2015.
11:48 am
October 21, 2013
Offline
jbrown2791 said
Here's a hypothetical scenario:
Say I have $25 000 in a TFSA. I've used up my $5500 for 2014 and made no withdrawals up to this point. My carry over limit is 0, so my contribution room for 2015 sits at $5500. That's a decent enough amount of money, but let's say I want more space because I have another $15 000 sitting in a regular savings account. What is stopping me from withdrawing 15k on or slightly before Dec 31 from the TFSA to expand my contribution room for the new year from 5500 to 20 500? I would essentially transfer the money from the TFSA to one of my other accounts for a few days and put it back in early 2015, but also including the $15 000, thus fattening up the TFSA.
In short, this is my question: can you purposely and intentionally expand your contribution room by withdrawing a large amount from your TFSA late in the year (ie. withdraw December 31 and re-contribute Jan 1)?
Technically it is still a withdrawal, but are there any rules for this short of idea? It sort of seems like cheating the system, but is it allowed? With a simple transfer you can double or triple your contribution room (or more) and do it year after year if you have the funds available.
Thanks for any insight!
1. I am not clear why you do not have any more contribution room at present. Perhaps you have another TFSA somewhere else or you lost some TFSA money in the stock market, but your total contributions thus far could have been $31,000, assuming you've been in Canada since 2009. It's also possible you miscalculated, so I thought I should flag this.
2. I don't see why you can't do as you have suggested but am not clear on the advantage. You take 15K out of TFSA and put it in savings account. Then you take a different 15K from another place and in 2015 you put it into the TFSA along with 5500 from somewhere. You are still left with 15K that you have to find a home for, just as you had in the beginning, and you can't put it in your TFSA.
In short, I don't see that you are increasing your contribution room at all, just shifting money around.
3. The only way that I know that you can, in effect, increase your contribution room is in the following scenario. Let's say you have contributed 20K to your TFSA and invested it very wisely so that it is now worth 30K. You can take out the 30K in 2014 and do whatever with it. In 2015, you can replace the entire 30K into the TFSA, not just the original deposit of 20K, plus you can contribute your regular contribution room. You are allowed to recontribute whatever you took out, including any gains received within the TFSA.
That is my understanding anyway. Am I missing something?
11:56 am
October 21, 2013
Offline
I see now that my response is essentially the same as Calan's, which was not available when I was writing, except that the total basic contribution room 2009-2014, not including recontributions related to gains, ought to be 31,000, assuming you were of legal age in 2009.
12:04 pm
February 17, 2013
Offline
jbrown2791 said
In short, this is my question: can you purposely and intentionally expand your contribution room by withdrawing a large amount from your TFSA late in the year (ie. withdraw December 31 and re-contribute Jan 1)?
Technically it is still a withdrawal, but are there any rules for this short of idea? It sort of seems like cheating the system, but is it allowed? With a simple transfer you can double or triple your contribution room (or more) and do it year after year if you have the funds available.
Thanks for any insight!
Bottom line...yes. It's called the December maneuver. But that is basically just for moving your TFSA from one bank to another without incurring a fee for transferring a registered account. The Dec 31 cutoff for the TFSA is the same as the tax year. If you took it out Dec 30 and put it back Dec 31, it would be considered an over contribution and you would be charged interest. Jan 1 is a new year and contribution room is increased by another $5500.00 TFSA's started for the 2009 tax year at 5000.00 per person over 18, and increased to 5500.00 for the 2013 tax year, so the maximum you can have contributed if you maxed out every tax year (if you were over 18 in 2009) is $31,000.00. If you take it out, you are decreasing your contributions to date by the amount you withdraw, and it just eligible to be replaced in the new year, along with the $5500 increase scheduled for Jan 1st. You cannot increase the basic amount you can contribute by withdrawing in Dec and contributing it back in Jan. In your scenario, you are only gaining the $5500 increase due Jan 1 so there is no point in withdrawing it in Dec just to put it back in Jan. If you take out 15K from your TFSA and put it in your reg savings, that will balloon to 30K, then put 20,500 from your reg savings back into your TFSA Jan 1, you'll still have 9500 left in your reg savings - your original 15K less the 5500 increase due Jan 1. You are actually losing money because the money you take out and and the interest you get by sticking it in your reg savings is no longer tax sheltered (and probably earning less than it would in your TFSA account). The amount you can take out will increase due to interest, and your contribution room will increase by whatever you withdraw. For example, if you had maxed contributions every year you would have 31k plus interest of 3 or 4 thousand compounded to date for a total of , let's say a nice round 35000, you could take out the entire 35K and your contribution room for next year would be 40,500 (your 35K + another 5500). But same scenario...the money you take out would no longer be tax sheltered if you put it in a reg account, and you would end up losing money. Basically...no....you cannot increase your basic contributions by withdrawing them in Dec. As of Jan 2015, your maximum contribution (if you had been maxing since 2009) will be 36,500. There is no way to increase that.
12:10 pm
June 6, 2014
Offline
Loonie said
I see now that my response is essentially the same as Calan's, which was not available when I was writing, except that the total basic contribution room 2009-2014, not including recontributions due to gains, ought to be 31,000, assuming you were of legal age in 2009.
You're right - I didn't add it up correctly.
2:11 pm
October 18, 2014
Offline
Hi everyone, thanks for the feedback. I think I may have over-complicated my question. It was hypothetical and meant to be an example to better illustrate my question, which it didn't do cause it seemed like there was some confusion. I really was just curious about government rules/regulations for TFSAs in a case such as this; in terms of getting in trouble for withdrawing a large amount late in the year in order to increase contribution room for the new year. I think my lengthy example in the first paragraph muddled things up. It was just for example and is not reflective of my actual TFSA.
Sorry for any confusion!
5:11 pm
October 21, 2013
Offline
You can withdraw the whole thing on Dec 31 and re-deposit it on Jan 1 if you can find an institution that's available to take your deposit. It's a way of avoiding transfer-out fees at some institutions, but I can't see too many reasons to do it. Any apparent increase in contribution room is illusory.
It's a badly constructed rule in my opinion, and creates a lot of confusion and questions, but others have defended it on another thread as a bureaucratic necessity, which perhaps it is.
Many people don't realize that it's up to them to keep track of deposits and withdrawals and making sure they stay within the rules. Unlike with RRSPs, CRA does not tell you. They only tell you when you have violated the rules and incurred fines.
5:47 pm
December 23, 2011
Offline
This government site will show your deposits, withdrawals and contribution room.
http://www.cra-arc.gc.ca/myaccount/
It is NOT a live updated site and yes you have to keep track your self through out the year.
Your financial institution must update the government “By the last day of February of the following year, all issuers are required to electronically submit a TFSA record to CRA for each individual who has a TFSA.”
So....I would assume end of March it would be updated??
http://www.cra-arc.gc.ca/tx/nd.....n-eng.html
12:37 pm
January 30, 2009
Offline
Hi Jbrown,
The easy way to think about it is, whatever you withdraw from your TFSA any time this year, can be re-deposited next year (but not earlier than this). I suggest that you don't use the government site to check your TFSA room because the information there will likely not be accurate for you.
If you have made any withdrawals this year from your TFSA already, and re-contributed the money, you will have to do some math to figure out how much you can re-contribute next year (we can help with this if you need it).
Another thing to consider is, if you plan to take out money in December, to redeposit it in January, make sure you allow some time for this to happen. If you try to withdraw on December 31, 2014, your funds may actually show as being withdrawn later than this and you will be penalized for this as an over-contribution to your TFSA (providing you were at your maximum).
(As a side note, any withdrawals from RRSPs can't be re-contributed in most cases.)
If you're not sure, please ask more questions so we can help you.
Have a nice Sunday afternoon!
Please write your comments in the forum.