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TFSAs are amazing investment vehicles. They offer Canadians the ability to invest in certain assets while generating tax-free returns. 

However, the CRA sets an annual contribution limit that you must not exceed. Over-contributing to your TFSA will result in a tax penalty – based on your excess contribution amount.

With this said, Canadians often wonder whether or not dividends generated within their TFSA count towards their annual contributions.

So let’s clarify this.

Dividends generated within your TFSA do not count against your TFSA contribution limit. Your TFSA contribution room will not decrease as your dividend income increases your account value.

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For example, let’s say you’ve just contributed your first $10,000 in your TFSA but your contribution limit for the current year is $15,000 – this leaves you with $5,000 in contribution room. If your $10,000 generates you $500 in dividends, assuming no other returns, your TFSA now has a value of $10,500. Your contribution room remains the same and you can still contribute an additional $5,000 for that year.

I know this can be confusing, but stick with me. 

Your contributions are only determined by what you put into your TFSA and not by any returns generated within it, including dividends.  

Let’s look at one more example.

Sarah turned 19 years old in the summer of 2020 but hasn’t contributed any money into her TFSA yet, her TFSA limit is $12,000 ($6,000 and $6,000 for 2019 and 2020 ). After her 19th birthday she decides to contribute the full $12,000 and invests in some dividend paying stocks based on some investment advice she received. By the end of 2020, Sarah earned $1,000 in dividends within her TFSA. 

As the 2021 TFSA limit was set at $6,000, Sarah is now wondering if her 2021 contribution room will only be $5000 ($6,000 limit minus her $1,000 in dividends)

Here’s the thing, Sarah’s contribution room for 2021 will not be impacted because of any earnings generated in her TFSA from 2020. In other words, Sarah’s $1,000 increase in TFSA value will not reduce her TFSA contribution room for the succeeding year.

Quick Note #1 – Similar to dividend income, any interest you earn from savings within your TFSA doesn’t count towards your annual TFSA contribution limit.

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Does my TFSA Contribution Limit Increase if I Withdraw my Dividends?

No, your TFSA contribution limit will not increase during the year if you decide to withdraw dividend income from your account.

While it’s perfectly fine to withdraw and contribute to your TFSA in the same year, just know your annual contribution room will not be impacted by any withdrawals you make – until the following year.

Let’s look at a quick example. 

Let’s say Sarah’s contribution room is $11,500 for 2020 and she has only contributed $6,500 thus far. She currently has $5,000 left in contribution room. In November of 2020, Sarah withdrew $1,000 from here TFSA. Her contribution for the remainder of 2020 is still $5,000, it doesn’t increase to $6,000 based on her withdrawal. 

In 2021 however, Sarah’s new contribution room is $12,000.


Well the 2021 TFSA limit is $6,000 plus her $5,000 unused contribution room from 2020 plus her 2020 withdrawal of $1,000 that she can now re-contribute.

This is not to say you can’t make TFSA deposits in the same calendar year as when you make withdrawals, but just make sure you have available contribution room.

For instance, if Sarah’s contribution room is $11,500 in 2020 but she’s only contributed $4,000 – Her current contribution room is $7,500. Let’s say Sarah decides to withdraw $2,000 from her TFSA in March of 2020, her TFSA value is now $2000 but her contribution room for 2020 remains at $7,500 – it does not increase to $9,500.

In August, Sarah decides to re-contribute the $2,000 into her TFSA. This is perfectly fine as her contribution room is $7,500. Sarah can contribute up to $7,500 if she wants (For 2020).

Related Financial Geek Article: Do Dividends Count as RRSP Contributions?

How to Check Your TFSA Contribution Room?

Okay, if you are still super confused, I don’t blame you.

At the end of the day, just know that any income generated in your TFSA, whether dividends or interest, won’t count towards your contribution room.

If you’re nervous about over-contributing to your TFSA, just check your TFSA contribution room and don’t deposit more than that. 

Another Financial Geek article, How Can I Check my TFSA Limit?, gives a step by step breakdown on how to easily check your current TFSA contribution room. 

Quickly put, login to your CRA account and scroll down to the bottom and check the amount next to TFSA Contribution Room. Then subtract any deposits you’ve made in the current calendar year. 

Until January 1st of the following year, avoid contributing more than whatever this number is.

Quick Note #2 – Over-contributions to TFSAs are subject to a 1% penalty tax per month.


While registered investment vehicles such as RRSPs and TFSAs are amazing places to save money due to their tax benefits, their contribution rules can sometimes be confusing. 

Not understanding these contribution rules could potentially result in you underestimating or overestimating how much you can contribute to your TFSA.

This article has a lot of examples with numbers and different situations and this, that and the other thing. So to summarize, I will try and minimize any confusion and avoid using math.


Do dividends count as TFSA contributions?

No, dividends generated within your TFSA will not count against your TFSA contribution room.

If I withdraw my dividends, does my TFSA contribution limit increase?

Not until the following year. Once your TFSA contribution room is set for the year, it doesn’t change until January 1st of the following year. 

Your TFSA contribution room stays static throughout the year regardless of any dividend withdrawals.

Can I re-contribute dividends I withdrew in the same year?

Yes, as long as you have a contribution room available.

I’m still confused, what do I do?

Just remember that dividends don’t count towards your TFSA’s annual contribution limit. Ignore everything else.

How can I make sure I don’t over-contribute to my TFSA?

Check your TFSA Contribution limit and make sure your contributions don’t exceed  it. 

Remember that your TFSA contribution room doesn’t change throughout the year regardless of any withdrawals or returns.

Thank you, and goodnight!

Geek, out.

How to Open a TFSA with Wealthsimple (4-Step Guide)

If you are interested opening up a TFSA for yourself, check out The Financial Geek’s Step-by-Step Guide on how to do so with Wealthsimple.

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  1. What about using those dividends in the same account to purchase more divided-making shares? E.g. my TFSA makes 4500/year in dividends. Can I still contribute the maximum yearly contributions plus my 4500 in income, to buy more said shares? I guess I’m skeptical cause I can’t see being allowed to add over 10k per year into dividend making shares.

    1. Hey Tyler,

      Thanks for the comment!

      Believe it or not, reinvested dividends do not count towards your contribution room as long as those dividends remain within the same TFSA account.

      So if your dividends generate $4500 in cash within your TFSA, you can use that cash to buy more shares and your contribution room won’t be impacted – again ASLONG as you don’t withdrawal those dividends.

      Does that make sense?

      Great question!

      PS – if $4500 is your annual dividend income, that’s amazing!

  2. Pingback: TFSA Advantages & Disadvantages (6 of Each) – The Financial Geek | Make the Most of Your Money

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