Do TFSA Withdrawals Count as Income?

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Is it time to withdraw some money from your TFSA?

Whether it’s to buy a new car, to fund a renovation project or just to realize some capital gains made on your investments, withdrawing money from your TFSA comes with little to no  restrictions.

To those wondering if TFSA withdrawals count as income when it comes to filing taxes, here is your answer:

TFSA withdrawals do not count towards your taxable income. This includes any income earned on your investments made within your TFSA.

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Furthermore, federal income tested benefits and potential tax credits also won’t be impacted as your TFSA withdrawals won’t be included in your income tax and benefit return.

For example, before any investment returns or withdrawals, let’s say Kieran and Daniel both have a total taxable income of $65,000 a year.

Kieran and Daniel each keep $50,000 in a savings account paying them 3% in interest per year.

Kieran keeps his savings outside of a TFSA while Daniel stores his $50k savings in a TFSA.

Quick Note #1 – Remember that a TFSA account is not an investment in itself, but more like a special type of account where you can make and hold investments.

Do TFSA Withdrawals Count as Income?

Kieran and Daniel both earn $1500 in interest income from their savings accounts.

Because Daniel saves his money within a TFSA account, the $1500s in interest income he withdraws each year is not added to his taxable income – hence the name tax-free.

Kieran on the other hand will have to include his $1500 interest income to his taxable income as it was not held in a registered savings account.

Daniels taxable income remains at $65,000 while Kierans has increased to $66,500 – resulting in more taxes paid by Kieran despite the same additional income earned by both people.

What’s even worse for Kieran? Interest income is taxable in full in the year in which it’s received.

If Kieran instead decided to invest in Canadian stocks for example, then any dividends he received would be subject to preferential tax rate because of dividend tax credits.

Okay, maybe I am going too far into the weeds now, but here’s the key takeaway – TFSA withdrawals won’t increase your taxable income regardless of any returns earned on your investments.

Quick Note #2 – Transferring funds from one TFSA to another TFSA is not considered to be a withdrawal.

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Can I Re-contribute Money I’ve Withdrawn from my TFSA?

Yes, well kind of – It depends on the situation.

Allow me to explain.

It is perfectly okay to re-contribute money you’ve withdrawn from your TFSA as long as you have contribution room remaining.

But you can’t re-contribute funds to your TFSA if you’ve already maxed out your contribution limit for the year.

You might be wondering, but wouldn’t my contribution limit increase once I withdraw funds?

Yes it would, but you have to wait for the following year to get this contribution room back.

Let’s look at two simple examples.

Example 1 – Jack turned 19 in June of 2019 and he has already maxed out his TFSA by contributing $11,500 – Annual TFSA limit for 2018 and 2019 were $5,500 and $6,000 respectively.

In October of 2019, Jack decided to withdraw $4,500 from his TFSA to buy a used car. Despite his withdrawal, Jack still can’t recontribute any more money in his TFSA until 2020.

Do TFSA Withdrawals Count as Income?

However, in 2020, Jack’s new contribution room is $10,500 – this is calculated by the $6,000 Annual TFSA limit for 2020, plus the $4,500 amount he’s now allowed to recontribute based on his withdrawal in October of last year.

Example 2 – Sarah also turned 19 in June of 2019, but unlike Jack, she only maxed out her TFSA for the 2018 year and hasn’t made any contributions yet for 2019. This means her total contributions thus far have been $5,500 (2018 annual TFSA limit). So she still has $6,000 in contribution room left for 2019.

Sarah also decides to buy a used new car in October of 2019, costing her $4,500 which she decides to withdraw from her TFSA. Unfortunately though, after Sarah withdraws the money  from her TFSA, the seller backs out and won’t sell the car.

Sarah decides she wants to re-contribute the $4500 back into her TFSA. Unlike Jack, Sarah has $6,000 in contribution room left for 2019 and can re-contribute her withdrawal with no issue.

If the same situation happened to Jack, he would have over-contributed by $4500 and would have been slapped with a penalty based on his excess contribution.

If you are still confused, that’s okay, screw Sarah and Jack and just remember this – You can re-contribute money you’ve withdrawn from your TFSA as long as long as you have TFSA contribution room available.

If you want to check how much TFSA contribution room you have left for the current year, follow this step by step process.

How Does the CRA Know My TFSA Information?

Okay, so now you know that TFSA withdrawals do not count towards your taxable income and you also know TFSA withdrawals can be re-contributed if you have contribution room available.

But here’s a question you might be wondering, how does the CRA know all of this information about my account?

Is it up to you to tell them? How do they obtain all the information?

These are all valid questions and things I was wondering as well.

So after some research I found out that the CRA requires all TFSA issuers to electronically submit records of individuals whom they’ve issued a TFSA to.

TFSA issuers must submit this information to the CRA by the end February – these records include dates of all your contributions and withdrawals.

Then, based on your withdrawals, contributions and the new annual TFSA limit, the CRA will provide you with a new TFSA contribution limit for the year. This amount can be found on your CRA account homepage.

Do TFSA Withdrawals Count as Income?

To check your TFSA withdrawals and contributions, you can look at your TFSA transaction summary on your CRA online account.

Do TFSA Withdrawals Count as Income?

You should also be able to check this with your TFSA issuer to ensure the numbers match your account.

If there are any discrepancies in the amounts or dates, you should contact your TFSA issuer and if you are correct, they can send an amended record for the CRA to update.

Riveting stuff, I know. Don’t blink now, more to come!

Other Questions about TFSA Withdrawals

When Can I Withdraw Money from my TFSA?

Morning, noon or night.  You can withdraw funds from your TFSA at any time.

Are there any fees associated with withdrawing money from my TFSA?

Unlike an RRSP, there is no government fee or tax associated with withdrawing money from your TFSA.

However, some financial institutions may charge withdrawal fees so be sure to check with the financial institution who issued your withdrawal (Your TFSA Issuer).

Quick Note #3 – If you hold non-redeemable GICs within your TFSA, an early withdrawal will likely cost you. 

When Should I Withdraw Money from my TFSA?

Whenever the time is right for you!

The lack of rules surrounding TFSA withdrawals is what makes it great. If you want to invest some money for the short term and withdraw your returns a few years later, that’s perfectly fine!

Maybe it’s time to buy a new car, or maybe you want to take that dream vacation you’ve always been talking about.

It’s not up to me to decide, withdraw your money as you see fit.

My suggestion? Follow the CRA’s lead by not setting any hard and fast rules, withdraw at your leisure.


If you’ve made it this far, hopefully you know that TFSA withdrawals don’t count towards your taxable income.

Additionally, federal income tested benefits and tax credits won’t be impacted by your withdrawals, so not to worry.

Funding your TFSA to a point where it generates you noticeable returns is a great way to create an additional source of tax-free income.

Not only do withdrawals not count towards your income, but unlike RRSPs, you can withdraw funds from your TFSA whenever you’d like, free of any penalties.

If that’s not all good enough, remember that you recontribute any withdrawals made within your TFSA as long as you have available contribution room.

If you haven’t fallen asleep yet, I am shocked.

Geek, out.

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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.


Noel is the founder and main contributor for his blog - Noel's passion for personal finance has helped him amass over 600k readers to his Financial Geek blog.

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