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TFSA Clarification - Click HERE for Original Thread

msommers
I think I know the answers but I'll ask anyways just to be sure and keep things super simple.

Say I've put in the max 20K into a TFSA. In two years I decide to buy a house and use the money in the TFSA as a down deposit. During those last two years I've put in the max 5K/yr for a total of 30K. Once I withdrawl that 30K, I've forfeited 6 years of TFSA room, back to 5K and forced to wait until the next tax year to start contributing again.

Is this correct?

Additionally, if I gained any money from my principle (hopefully, HA) over that 6 years, say $1000, I can keep that in there and any gains are still tax free.

To make things kind of interesting, lets compare this to an RSP for the same purpose (down deposit).
Tripz
You would be able to contribute the TFSA amount you've withdrew on the next calendar year. Base on your example, you can contribute 30k plus additional 5k on year three (2015).

Yes any investment gain on the TFSA are tax shelter an you will not get tax on the amount you made.
kenny
Originally posted by msommers
Once I withdrawl that 30K, I've forfeited 6 years of TFSA room, back to 5K and forced to wait until the next tax year to start contributing again.

Is this correct?



No, the following year your contribution room will be ~35k (30k + the additional ~5k added on for the following year).

Signup for the "My Account" service on the CRA website. It'll tell you your TFSA limit and show all your contributions. No way of messing up that way.

http://www.cra-arc.gc.ca/myaccount/

msommers
Ahh interesting, I'm glad I asked! Thanks guys. And thanks for the link, Kenny.
93mr2gt
sounds like you made money from the TFSA account. When you want to re-contribute it next year, you not only get 30000 back and the 5000 for next year, but whatever you made from TFSA, you will have that room as well.

ex. If you made 3000 from your contribution room of 30000. Once you withdral all 33000, you still have that 33000 next year + additional 5000.
mazdavirgin
Originally posted by 93mr2gt
ex. If you made 3000 from your contribution room of 30000. Once you withdral all 33000, you still have that 33000 next year + additional 5000.



Pretty sure you are wrong on that front. If you take all your money out you only get the contribution room that was there previously as in the 5k per year you don't get the use the gains as extra contribution room. So if your contribution room was 30k and you made 3k you can take it all out but next year you can only contribute 35k back in...

kenny
Originally posted by mazdavirgin


Pretty sure you are wrong on that front. If you take all your money out you only get the contribution room that was there previously as in the 5k per year you don't get the use the gains as extra contribution room. So if your contribution room was 30k and you made 3k you can take it all out but next year you can only contribute 35k back in...



No, 93mr2gt is correct. 2012 contribution room formula is:

[2011 withdrawals] + [2011 unused contribution room] + 5000 (indexed to inflation)

Of course, any withdrawals to correct an over contribution do not count towards the next year's contribution room.

BananaFob
Originally posted by kenny


No, 93mr2gt is correct. 2012 contribution room formula is:

[2011 withdrawals] + [2011 unused contribution room] + 5000 (indexed to inflation)

Of course, any withdrawals to correct an over contribution do not count towards the next year's contribution room.



seconded. This is correct.

93mr2gt
ya, i am 99.9% sure thats the correct formula. It goes for the same if you lost money in your TFSA and then withdrew, you lose your contibution room in the future
Mibz
So if I have a $20,000 cap and $23,000 in there on Jan. 1, my cap will still be $25,000? But if I withdraw $3,000 before that, my cap will be $28,000?
93mr2gt
no...you will get 5000 on top of the 23000 you already got in there. your cap only changes when you do an withdrawal with a gain or a loss
Mibz
I can't figure out whether I typed that improperly or whether you're misunderstanding what I typed.

You're saying that, given the first scenario, I'd still get a $28,000 cap? But there's no withdrawal, which goes against your 2nd sentence.

If you're talking about the 2nd scenario, then you just agreed, but said no. :confused:
93mr2gt
sorry, i read your post too fast, you are right haha. :rofl:
Mibz
Haha, alright, fantastic.
Hi-Psi
What are the penalties if you go over the limit in the year? Basically went over by $1000 but immediately took it out.

Wondering what I'm going to see as a penalty at tax time
93mr2gt
1% on the excess portion...if left in there for more than a month, another 1% and so on
Hi-Psi
So if I took the $1000 out immediately then I would just lose $10 on the $1000?
msommers
http://www.cra-arc.gc.ca/tx/ndvdls/...-eng.html#xmpl2

If that's the case, it sounds like one shouldn't care about being taxed at all and rack up your TFSA for maximum earnings and pay the measily tax on it...
kenny
Originally posted by msommers
http://www.cra-arc.gc.ca/tx/ndvdls/...-eng.html#xmpl2

If that's the case, it sounds like one shouldn't care about being taxed at all and rack up your TFSA for maximum earnings and pay the measily tax on it...



Not quite. Deliberate over contributions are treated differently and taxed as an advantage (100% tax rate). This was fixed in 2009 because people were taking advantage by over contributing huge sums of money and withdrawing it before the next month.

93mr2gt
i do believe in your case you only get taxed 10 bux
msommers
No I mean over contributing and keeping the money in there. If you can shelter your savings from tax and be pay a penalty of only 1%/month, it would certainly be worth the risk of gaining more than 1% a month than have the money in a conventional savings account and being taxed on the gains. Or does the 100% tax rate apply to this as well? I just can't seem to find an answer on it on CRA.
kenny
No if you leave the over contribution in there month after month it'll just be 1% for each month there is an over contribution. They show examples of this.

Under this new definition, a “deliberate over-contribution” means any contribution made under a TFSA by the individual that results in, or increases, an “excess TFSA amount” unless it is reasonable to conclude that the individual neither knew nor ought to have known that the contribution could result in liability for a penalty, tax or similar consequence under this Act.



I imagine this is only put in there for the heavy contributors and people that make small deposits are not going to be considered deliberate over contributors. Throw in $50k at once and it's pretty obvious. :)

93mr2gt
i bet you in that case you get double taxed...but i am not 100% sure...

but i think it will be 1% penalty on any over contribution, and the over contributed amount will be taxed if you had any gains
msommers
Appreciated Kenny.



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