Managing TFSA Misconceptions: Avoiding Errors and Omissions

Walter Harder

The Tax Free Savings Account (TFSA) has been with us for a decade now, yet there are many misconceptions about it. For example, the 2019 contribution limit is $63,500 for those who have been eligible to contribute every year since 2009. That’s residents of Canada who are 18 or over. If you turned 18 in 2019, however, you would contribute based on the current year limit of $6000. Another big problem: when to replenish your withdrawn funds.

Specifically, are you thinking of replenishing your TFSA before the new $6,000 TFSA contribution room opens up on January 1, 2020? Many individuals don’t understand the mechanism for replenishing TFSA withdrawals and may be subject to penalties for recontributing too early.

Each year Canadian residents earn additional contribution room on January 1 if they are age 18 and a resident of Canada.  The amount of their available room as of the last tax season is shown on their Notice of Assessment from CRA or on their My Account web page. However, any contributions made in 2019 will not be reflected in that figure.

One of the benefits of a TFSA over an RRSP is that after a withdrawal, the gap in the lifetime contribution limit can be replenished. However, what many individuals do not understand is that the contribution room is not replenished until the following year. If you re-contribute to the plan before this, you’ll be subject to a 1% per month penalty on the excess contribution.

Here’s an example: Tyrone’s 2019 TFSA contribution room, as shown by CRA was $10,000.  In February, he withdrew $25,000 from his TFSA.  How much can Tyrone contribute to his TFSA and when?

Until the end of 2019, Tyrone’s total contributions for 2019 must not exceed $10,000.  If he makes the $10,000 maximum contribution, as of January 2020, his contribution room will be

January 1 contribution room:


Minus: 2019 contributions


Plus 2019 withdrawals


Plus 2020 new contribution room:





If Tyrone re-contributes the $25,000 withdrawal in November 2019, he’ll be liable for a penalty of $250 per month for November and December because this is considered to be an overcontribution until the new contribution room opens up in January 2020.

Be sure to speak to a DFA-Tax Services Specialist™ to help you manage your TFSA contribution and re-contribution room to avoid the 1% per month penalty and file the TFSA Return and its accompanying Form RC243 Schedule A – Excess TFSA Amounts to report the 1% tax.  Failure to file the TFSA return can result in late filing penalties as well. 

 Additional educational resources: Learn more about TFSAs and other registered and non-registered tax-efficient investment options in the certificate course Tax Strategies for Investors. Or enrol in the MFA™-Retirement and Succession Services Specialist designation and add a highly prized service to your career: custom-design tax-efficient retirement income plans. Enrol or take a free trial today.