# Help with rules regarding growing ones contribution room inside the TFSA



## Justin1980 (Feb 23, 2013)

Let's suppose I've never used the tfsa before today, and I go deposit the $31,000 max.

Suppose I buy exactly $31,000 of company xyz.

1) I understand that dividends paid will not trigger over-contribution, correct?
- So if I receive $1,000, there are no penalties.

Assuming I withdraw that $1,000, and assuming next year provides $5,500 more room; am I able to contribute $6,500?
- Basically I'm asking if dividends contribute to the "variable growing max contribution ceiling" as capital gains do?

2) New scenerio; I buy $31,000 in a stock that pays no dividend.
Scenerio A) stock value goes to $35,000, at which point I withdraw it all. In this scenerio, I've gained $4,000, so next year I can contribute $35,000 + $5,500, correct?

Scenerio B) Stock again increases to $35,000, but then falls back to it's original $31,000. I then withdraw everything.
What would my contribution room be next year

Scenerio C) Stock rises to $35,000, then falls to $28,000 in the same year. I withdraw everything. What would my limit be next year?

Scenerio D) Last one I promise! Last year I bought $25,500 of that stock. It rose to $35,000, then fell to $22,000, at which point I withdraw. What would my max room next year be?

Basically that last one, is I'm asking if one can LOSE previously gained "bonus room"?

I know I asked a ton there. I searched online and was having no luck. Any links or advice would be great.


----------



## cashinstinct (Apr 4, 2009)

You can lose / increase room.

Scenario A) Correct, for the $5,500 part it's not confirmed yet that it will be $5,500 in 2015 but it should be.

Scenario B) You contribution room would be based on your withdrawal amount + amount you did not contribute yet + contribution room for the following year.

Scenario C) see Scenario B.

Scenario D) see scenario B.

You can lose previously gained bonus room.


----------



## wendi1 (Oct 2, 2013)

1) Dividends do not count as contributions.

2) a) Correct.
b) 31K+5.5K = 36.5K
c) 28K +5.5K = 33.5K
d) 22K +5.5K = 27.5K

The rule is: The current value of your withdrawal is added to your contribution room for the next year. Not the highest ever value of your TFSA, not the price you originally paid, not the lowest ever value of your TFSA. 

Unlike non-registered accounts, you cannot deduct capital losses from future capital gains, either.


----------



## Justin1980 (Feb 23, 2013)

Oh ok that's perfect actually guys, thanks so much. I only gave so many scenerios because I wasn't sure I'd have said it properly, but you guys nailed it. Thank you.


----------



## Eclectic12 (Oct 20, 2010)

1) The Contribution room is for contributions.

Once the money or stock has been contributed to the TFSA (or RRSP), whether it gains or drops, pays dividends or other sources of income *does not affect* your available contribution room.

The only factors that affect contribution room are:
1) qualifying for another round of new contribution room each year (which increases what's available).
2) making a contribution (which decreases what's available) 
3) making a withdrawal (which is added back as additional contribution room, the *following* year).


You are correct that the withdrawal of $1K will add an additional $1K the following contribution year.


Why are you complicating things by whatever this "variable growing max contribution ceiling" is?
Gains from whatever source in a TFSA will add to the *value* of the TFSA. 
Without a withdrawal, *there is no impact on the TFSA contribution limit*.


Your scenarios of "if this value, then that value" are IMO a waste of time because regardless of the paper gains/loses ... the value at the time of the withdrawal is the only value that will grant additional TFSA contribution room.

You are reminding me of the people who thought they were millionaires based on the value of their Nortel stock at it's high point, never sold and ended up with next to nothing. Just as they "lost" their paper millions by not selling, you can lose the same in your TFSA but again, without a withdrawal - it won't affect the TFSA contribution room.

Here's my two illustration scenario:

1a) Put in $1K to the TFSA, buy a penny stock that goes to $200K but sell for $500 and withdraw $500. 
You get an additional $500 TFSA contribution room the following year.

1b) Put in $1K to the TFSA, buy a penny stock that goes to $200K, sell for $200K and withdraw $100K.
You get an additional $100K TFSA contribution room the following year.


My question to you is what are you trying to achieve with all of these scenarios?


Cheers


*PS*

Sorry if this sounds like an attack ... but there's already too much confusion about the TFSA rules without complicated scenarios that hide what "contribution limit" is as well as the limited sources of the contribution limit increasing.


----------



## Justin1980 (Feb 23, 2013)

Eclectic12 said:


> 1) The Contribution room is for contributions.
> 
> Once the money or stock has been contributed to the TFSA (or RRSP), whether it gains or drops, pays dividends or other sources of income *does not affect* your available contribution room.
> 
> ...


I apologize as I haven't been online to reply this week. I also apologize Eclectic; I see you're a bit frustrated. As you mentioned there is a great deal of confusion on the rules. If it appears I was trying to add to the confusion, I was not, and again apologize if it came across that way.

I'm sorry that my question and the scenerios I presented were a "waste of time" for me, but I asked them because I didn't understand them. 

I can see why you say my scenerios are a waste of time, but for me they were important. I see that paper gains and losses have no effect on a given individuals personal ceiling. I might have worded my question better, but that was exactly what my scenerios were trying to portray. I'm just a bit surprised to see someone bothered/ offended/ annoyed/ frustrated or *whatever* to the point of saying that a clarifying question in an admittedly confusing area (or the manner in which I asked) was a waste of time.

Anyhow, thank you everyone for your input, however it seems the replies contradicted each other?

Eclectic, you said: "Once the money or stock has been contributed to the TFSA (or RRSP), whether it gains or drops, pays dividends or other sources of income *does not affect* your available contribution room."

Now I was under the impression that if the stock goes up by $10k, and then you sell it to have as cash (to hold, buy more stocks, or withdrawal) then next January you'd have a tfsa that can hold $31k + $5,500 + $10k = $46,500. But you're saying that how well your stocks do has no impact on the max that can be held in the tfsa? Are you being legalistic and saying "How well a stock does has no impact on your max ...(until the stock is sold)? Or are you meaning that it actually has no effect (like you said).

You asked why I am asking these, and I just feel it's important because I THOUGHT it was possible to increase your max tfsa room, which seems amazingly potentially profitable.

Clearly I don't know half of what most people here know, I'm sorry if my questions sound stupid. I'm just trying to learn.

Eclectic: in your two scenerios, what would your total room? When you say 100k is added next year, do you mean 100k + $5500?

I'm sorry, I'm sure I've worded this wrong.


----------



## Spudd (Oct 11, 2011)

Here's the thing. It doesn't matter what has happened inside the TFSA. The only thing that matters for your contribution room is how much you withdraw. Your contribution room the following year is based on how much you withdrew the previous year + that year's normal limit (currently 5500). 

So, for your scenarios:
Scenario 1: Buy exactly $31,000 of company xyz and then withdraw $1000.
Result: Contribution room the next year will be $6500 - The $1000 you withdrew plus the $5500. (It doesn't matter what the balance of the TFSA is.)

Scenario 2A: I buy $31,000 in a stock that pays no dividend. I withdraw $35,000.
Result: Next year I can contribute $35,000 + $5,500.

Scenario 2B) Stock again increases to $35,000, but then falls back to it's original $31,000. I then withdraw everything.
Result: Next year I can contribute $31,000 + $5,500.

Scenario 2C: Stock rises to $35,000, then falls to $28,000 in the same year. I withdraw everything. What would my limit be next year?
Result: Next year I can contribute $28,000 + $5,500.

Scenario 2D: Last year I bought $25,500 of that stock. It rose to $35,000, then fell to $22,000, at which point I withdraw. What would my max room next year be?
Result: You withdrew $22,000, so your limit the following year will be $22,000 + $5,500.

Hopefully you get the gist. It makes NO difference what happened in the TFSA. Let's say you bought a stock for $31k and it rose to $200k. You withdraw $40k. Your limit the next year is $45.5k. 

Also, withdrawing doesn't give you some kind of magical advantage. You are allowed to replace whatever money you took out, plus add the following year's contribution of $5500. Leaving the money inside the TFSA will lead to the exact same balance of the TFSA after the next year's contribution.


----------



## Eclectic12 (Oct 20, 2010)

Justin1980 said:


> I apologize as I haven't been online to reply this week. I also apologize Eclectic; I see you're a bit frustrated.


I apologise as I should keep my rant separate from explanations.




Justin1980 said:


> I can see why you say my scenerios are a waste of time, but for me they were important. I see that paper gains and losses have no effect on a given individuals personal ceiling.


If by personal ceiling you mean TFSA contribution room, you can add realised gains & losses as well.
Where one has contributed $5K ... that $5K of contribution room has been used and is gone.

Withdrawing will result in the same amount being added as TFSA contribution room ... but since it's $ for $ ... there's no gain.




Justin1980 said:


> I'm just a bit surprised to see someone bothered/ offended/ annoyed/ frustrated or *whatever* to the point of saying that a clarifying question in an admittedly confusing area (or the manner in which I asked) was a waste of time.


That's where I could have worded it better to illustrate why I think it's a waste of time.
If one understands that a cash withdrawal is going to become additional TFSA contribution room ... the paper value isn't really going to matter until one converts to cash and acts.

The other way I see it as a wrong focus is that one should be preserving one's gains - where there is a plan to withdraw or not. If one is managing the gains efficiently, there will be growth and the opportunity to withdraw should a temporary bump up help.




Justin1980 said:


> ... Now I was under the impression that if the stock goes up by $10k, and then you sell it to have as cash (to hold, buy more stocks, or withdrawal) then next January you'd have a tfsa that can hold $31k + $5,500 + $10k = $46,500.


First comment ... one can't have $31K as one had to contribute $x to buy the stock that went to $10K in the TFSA.
Assuming no withdrawal, this will mean TFSA contribution room is the $31K started with minus $x contributed and plus the next year $5.5K (or $36.5K - $x).

Second comment ... there is no gov't mandated limit to the value of what's in the TFSA. It's all tax free where whatever it grows to, it grows (or drops to). 
The "limit" is on contributions ... period.

Third comment ... adding the TFSA contribution limit to the investments that have already consumed TFSA contribution $ is IMO, mixing apples and oranges.





Justin1980 said:


> ... But you're saying that how well your stocks do has no impact on the max that can be held in the tfsa? ...


Correct ... because once $ go into the TFSA, one can make as much as one does. 
That's why some have contributed $31K, have $0 TFSA contribution room and have a TFSA worth $10K (bad investments) or $33K (middle of the road investments) or $300K ( great penny stock picks).

Let me try re-wording it to hopefully make it clearer.

If one has used up all of one's TFSA contribution room, whether one has $10 or $200K in their TFSA ... they *can't* put anything into the TFSA.
If on Jan 1 the next year, the $10 has increased to $20 or the $200K has increased - the new $5.5K TFSA contribution room will be granted but that's all that can be contributed, assuming no withdrawals.

But ... I can hear you ask "what about withdrawals" ... I'll cover that as part of the next point ...




Justin1980 said:


> ...You asked why I am asking these, and I just feel it's important because I THOUGHT it was possible to increase your max tfsa room, which seems amazingly potentially profitable.


That's what I thought you were thinking and is a trap that people fall into ... withdrawals become contribution room on a $ for $ basis so that there is no increase.

To illustrate, let's consider the TFSA that has grown to $200K and modify it a bit by saying $100K is withdrawn in July.

What happens on Jan 1 the following year?

TFSA contribution room has the new $5.5K plus the $100K withdrawal for an updated TFSA contribution limit of $105.5K.
Then say in the next year May, $100K is contributed into the TFSA.

To keep it simple, I am assuming the TFSA stays a constant value ... in real life, the $100K left in the TFSA would likely be invested and varying in value.
I am also assuming all TFSA contribution room has been used up.

Looking at this at points in time:
Mar this year ... TFSA contribution room $0, TFSA value $200K.
July this year ... TFSA contribution room $0, TFSA value $100K, taxable cash from withdrawl $100K.
Jan next year ... TFSA contribution room $105.5K, TFSA value $100K, taxable cash $100K.
Jun next year ... TFSA contribution room $5.5K, TFSA value $200K, taxable cash $0

So despite the withdrawal - the ending value is the same as the starting value (i.e. Mar this year and Jun next year).

Sure ... for some months the TFSA contribution room increased but it converted $100K tax free money to taxable, where the TFSA had the same $200K at the end.
The temporary contribution room increase that is only available from growth that *already happened* in the TFSA. I'd guess that typically it is usually not worth making the withdrawal taxable.

Where one is fortunate to have grown the TFSA, unless there is some other factor where a withdrawal is planned anyway - there is usually no advantage being given by the withdrawal.




Justin1980 said:


> ... Eclectic: in your two scenerios, what would your total room?
> When you say 100k is added next year, do you mean 100k + $5500?


As long as one qualifies for the $5.5K, then yes ... it would be in addition to the withdrawal amounts. 

For 1a) the total TFSA contribution room granted the following year would be $6K and for 1b), it would be $105.5K.


Cheers


----------



## Justin1980 (Feb 23, 2013)

Wow, amazing replies. Thank you all for taking the time to share that, thank you.

Again, I'll apologize. I realized the terminology I was using at times was wrong and/or misleading.
When I referred to the max individual tfsa room, I meant ones ability to increase it above 31k by converting everything to cash, inside the tfsa. If I just said that wrong also, it's ok, you guys covered what I was asking, so don't worry about that. 

Here is a question though: I heard it said that capital gains, but NOT dividends contribute to that increasing tfsa ceiling? How can this be? For example, if I have never sold stocks in my tfsa (but they have paid dividends), then if I withdraw $200 (which was cash from dividends), then on jan 1st, would I not be able to deposit $5,700?

Or maybe I misunderstood?

Again, thanks so much all.


----------



## Retired Peasant (Apr 22, 2013)

Justin1980 said:


> Now I was under the impression that if the stock goes up by $10k, and then you sell it to have as cash (to hold, buy more stocks, or withdrawal) then next January you'd have a tfsa that can hold $31k + $5,500 + $10k = $46,500.


I'm wondering if you are confusing selling vs withdrawing. If you sell it, it's still in the TFSA, so you can't add it to next year's contribution. If you withdraw it from the TFSA, then you can add it to next year's contribution.


----------



## Spudd (Oct 11, 2011)

Justin1980 said:


> Here is a question though: I heard it said that capital gains, but NOT dividends contribute to that increasing tfsa ceiling? How can this be? For example, if I have never sold stocks in my tfsa (but they have paid dividends), then if I withdraw $200 (which was cash from dividends), then on jan 1st, would I not be able to deposit $5,700?
> 
> Or maybe I misunderstood?


It makes absolutely no difference how the money you withdrew was created. The ONLY thing that matters is how much you withdrew, that plus your new year's limit will be your limit for the following year. So in your example, if you got paid $200 in dividends in the TFSA and you withdrew that, then your next year's limit will be $5,700 as you mentioned.

And again, I would like to mention that withdrawing it or not withdrawing it makes no difference to your overall position. If you want to withdraw it to spend it, that's fine, but don't think about withdrawing it in order to increase your contribution limit. Because there is no advantage to that.


----------



## humble_pie (Jun 7, 2009)

i think one might want to give some thought to not withdrawing unless the funds are urgently needed, because any amount withdrawn will cease to earn tax-free.

funds left in TFSA will continue to earn & grow tax-free. But funds withdrawn have to wait months, sometimes almost an entire year until the 2nd day of january of the following year, before they can be re-contributed. During those months such funds lose their tax-free status.

i realize that many canadians view their TFSAs as savings accounts, where they can deposit & withdraw as needed (although apparently there are fees if more than minimum free WDs occur.)

but imho a better approach - especially now that injectable totals are up to $31,500 - is to treat the TFSA as a long-term investment vehicle & build a proper investment growth plan for it.


----------



## bgc_fan (Apr 5, 2009)

Justin1980 said:


> Wow, amazing replies. Thank you all for taking the time to share that, thank you.
> 
> Again, I'll apologize. I realized the terminology I was using at times was wrong and/or misleading.
> When I referred to the max individual tfsa room, I meant ones ability to increase it above 31k by converting everything to cash, inside the tfsa. If I just said that wrong also, it's ok, you guys covered what I was asking, so don't worry about that.
> ...


You misunderstood.

Let's put it simply... you cannot increase your TFSA ceiling. Full stop. 
It is determined by whatever the government has determined the ceiling to be for that year ($5.5K last year).

What you CAN do, is recontribute withdrawals from previous years. i.e. withdraw $10k this year, you can deposit/contribute that $10k next year. So don't think of that as raising the TFSA ceiling, rather that you are putting back what you took out of it.

This seems to be a fairly common misconception and people think that they've hit some sort of loophole, i.e. grow the TFSA by $100k, withdraw it all, and now the next year I can contribute $100k+$5.5k (profit!), but the end result is the same (minus any taxable gains while the funds are out of the TFSA) as if you didn't withdraw the $100k in the first place.


----------



## humble_pie (Jun 7, 2009)

Hero Awards to spudd & bgc fan for attempting to keep TFSA account owners straight about the do's & the don'ts of tax-frees.

SuperSonic Hero Award to eclectic who has tasked himself with teaching all who will listen how to correctly calculate & record the cost bases for securities, in order to be able to fill out those drat income tax capital gains/loss declarations for the CRA.

no, the brokers are not always correct, their cost bases in non-registered accounts are only goodwill gestures that are not binding upon anybody. These cost bases seem to have more & more mistakes every year.

brokers are not compensated for maintaining accurate cost base records, nor does the work constitute any kind of responsibility or mandate for them. Clients should not expect something for nothing & it's only fair to realize that broker cost base records are going to be uneven at best, sloppy here & there at worst.

eclectic's task is akin to the little Dutch boy with his finger in the dike, while the raging sea floods through holes in every other part of the dike structure.

the way i see it, brokers should state far more clearly - upfront, in bold face in the literature - that they are providing cost bases in non-registered accounts as a courtesy goodwill gesture only, although they are not required to do anything of the kind.

brokers should clearly warn investor clients - upfront on statements, in bold face - that said clients should learn to keep their own records.

and brokers should place the capital letter *E* for estimate after *all* tentative cost base calculations that they create in non-registered accounts.


----------



## humble_pie (Jun 7, 2009)

apologies to all for placing this tax calculation outburst in a TFSA tax-free thread each:

i was thinking along the lines of how grateful the forum is to those who - like spudd & bgc & eclectic - attempt so well to share info & enlighten others ...


----------



## Eclectic12 (Oct 20, 2010)

Justin1980 said:


> ... Again, I'll apologize. I realized the terminology I was using at times was wrong and/or misleading.
> When I referred to the max individual tfsa room, I meant ones ability to increase it above 31k by converting everything to cash, inside the tfsa. If I just said that wrong also, it's ok, you guys covered what I was asking, so don't worry about that.


No need to apologise .... but your wording does worry me that the understanding is slightly off the mark.

When you say "... to increase it above 31k by converting everything to cash, *inside the TFSA* ..", there is still misunderstanding.

Cash converted to stock converted to more stock converted to cash *does nothing* to the TFSA contribution limit.

Max individual TFSA room = TFSA contribution room and is only affected by the gov't granting additional amounts on Jan 1, contributions reducing the already granted available TFSA contribution limit (also referred to an "unused") and withdrawals add back contribution room the following year.

What happens in the TFSA - does not change it.
Growth in the value of the TFSA provides the *opportunity* to make a withdrawl but while in the TFSA, does not change it.




Justin1980 said:


> ... Here is a question though: I heard it said that capital gains, but NOT dividends contribute to that increasing tfsa ceiling? How can this be?


Capital gains and dividends will increase the value and does nothing to the TFSA contribution limit.




Justin1980 said:


> For example, if I have never sold stocks in my tfsa (but they have paid dividends), then if I withdraw $200 (which was cash from dividends), then on jan 1st, would I not be able to deposit $5,700?


Dividends have given cash, which has increased the value. 
Choosing to withdraw the $200 cash means that the withdrawal amount will be given back on Jan 1 of the following year as contribution room.

So for most people, there will be $5.7K ... where the CG nor the dividends being paid to the TFSA did not change the TFSA contribution limit. What gave the $200 increase the following year was the withdrawal.


The other thing to keep in mind is that the TFSA withdrawal = TFSA contribution room added back.
Except for a few specific situations ... there is no gain to being able to deposit $5.7K versus leaving the dividends in the TFSA and having $5.5K TFSA contribution room.

Think about it ... one had to be paid $200 dividends, one decided to withdrew $200 before the end of the year and one can put back $200 the following year.

$200 = $200 = $200 no matter how one slices it.


Cheers


----------



## Justin1980 (Feb 23, 2013)

I'd realized I'd been using the term contribute incorrectly.

Myself, I've never withdrawn, and never to withdraw anything from my tfsa.

Bgc: I will say I'm now confused again. You stated: "You cannot increase your tfsa ceiling. Full stop."

If I were to sell all my shares inside my tfsa, I'd have about $50k today, and I've never been penalized anything. I believe this suggests I have (or would have, if sold) increased my ceiling (or whatever you'd like to refer to it as) vs someone who's only held cash positions.

I also read an article in money sense where a few folks have over $100k.

Is this incorrect?


----------



## Justin1980 (Feb 23, 2013)

Sorry guys. My fingers (yeah, I blame them) have been typing "contribute" and "contribution room" very incorrectly. I THINK I understand. THINK...


----------



## Spudd (Oct 11, 2011)

You can increase your holdings inside the TFSA over the theoretical limit of contributions. In your case, you have grown your 31k to 50k. This is fine.

If you withdraw all 50k from your TFSA, then you can re-contribute it next year (in addition to that year's regular contribution limit). This is also fine.

So yes, you are increasing your contribution limit by withdrawing, but only to the point of equalizing the withdrawals with the contributions.


----------



## bgc_fan (Apr 5, 2009)

Justin1980 said:


> I'd realized I'd been using the term contribute incorrectly.
> 
> Myself, I've never withdrawn, and never to withdraw anything from my tfsa.
> 
> ...


It may be a misuse of terms. Your account size can increase as much as you are successful in investing. I.e. provided that you had only contributed the $31K max up until now, the account size can be any amount.

But the contribution ceiling is set by the government.

If you never withdraw anything from the TFSA, you cannot add any more money to it, other than the government limits, i.e. $5.5k for the last year. Just because the TFSA has grown, it does not mean you have added contribution room.

What you seem to be implying is that if you sold the shares WITHIN the TFSA without WITHDRAWING from a TFSA, you'd get a bonux $50K extra room next year. That is patently wrong. What goes on within your TFSA account has nothing to do with what you can contribute next year.


----------



## Eclectic12 (Oct 20, 2010)

Justin1980 said:


> I'd realized I'd been using the term contribute incorrectly.
> Myself, I've never withdrawn, and never to withdraw anything from my tfsa.


I have ... and I've put it back.




Justin1980 said:


> Bgc: I will say I'm now confused again. You stated: "You cannot increase your tfsa ceiling. Full stop."


That's where people who look at a withdrawal of $200 this year and then look at next year's TFSA contribution room at $5.5K + $200 for a total of $5.7K ... there must be an increase (with usually an assumption of a multiplier).

Technically ... $5.7K is an increase but one has to withdraw $200 from the TFSA to get the increase.
So the year the TFSA limit is $5.7K, the TFSA is down $200 (the withdrawal) so it all balances out.

It's the same as if I have $500, my brother says "lend me $25 until next week".
If I agree, this week I have $475 and a promise to pay $25.
Next week after my brother pays me back, I have $500.

Did I loose money? Did I gain money?
Or is $500 = $475 with a promise to pay $25 = $500?




Justin1980 said:


> If I were to sell all my shares inside my tfsa, I'd have about $50k today, and I've never been penalized anything. I believe this suggests I have (or would have, if sold) increased my ceiling (or whatever you'd like to refer to it as) vs someone who's only held cash positions.


Review the previous posts what what increases or decreases the TFSA contribution limit.

Is "selling stock" one of them?


Cheers


----------



## Justin1980 (Feb 23, 2013)

bgc_fan said:


> What you seem to be implying is that if you sold the shares WITHIN the TFSA without WITHDRAWING from a TFSA, you'd get a bonux $50K extra room next year.


Oh, no no. That's not what i meant. I realize i was wording myself terribly. I think i have it now. Thanks everyone for the very helpful efforts.


----------



## Justin1980 (Feb 23, 2013)

Eclectic12 said:


> Review the previous posts what what increases or decreases the TFSA contribution limit.
> 
> Is "selling stock" one of them?
> 
> ...


Selling stock? No.

Not unless you then withdrew that money from the TFSA account.


----------



## Eclectic12 (Oct 20, 2010)

... then hopefully you can see that when you talk about " ... increased my ceiling (or whatever you'd like to refer to it as) ..." - that isn't true.

If you want to link the growth to the TFSA contribution limit - it's a "gives the potential to make a withdrawal" type situation.


Hopefully you've also seen that there is no way to growth the TFSA limit ... it can only be temporarily increased by a withdrawal, which requires either $$ and/or growth in the TFSA.

Growing the investments in the TFSA should be the priority ... and as others have pointed out, without a need to withdraw, one is better to leave the money in the TFSA tax free.


Cheers


----------



## Pluto (Sep 12, 2013)

Justin1980 said:


> Here is a question though: I heard it said that capital gains, but NOT dividends contribute to that increasing tfsa ceiling? How can this be? For example, if I have never sold stocks in my tfsa (but they have paid dividends), then if I withdraw $200 (which was cash from dividends), then on jan 1st, would I not be able to deposit $5,700?


Justin you are mixing the value inside the tfsa with the ceiling on contributions. The Gov't doesn't care what the value inside is. They don't care if your stock goes up or down, or if it pays dividends or not - It doesn't effect how much you can contribute. If you contributed the maximum, and bought a stock that went up 20x's or 50x's or what ever and then you sold it but left it in, and your tfsa Value was millions of dollars, it doesn't change contribution ceiling. There is no ceiling to the Value. There is only a ceiling to what you put in. The ceiling is only for contributions. In theory the value inside could be trillions of dollars and that would have nothing to do with the contribution ceiling. Even if you sell trillions of dollars worth of stock it doesn't effect the amount you can contribute. You can take it all out, and it still does not effect the net amount you can contribute. 

Supposing you contributed the max 31000.00, bought a stock, and it doubled, then you sold it. How much could you contribute? None. because you already put in the maximum allowed. Then supposing you took out the 62000.00? How much could you contribute? Immediately, none. The following year however, you could contribute 31000.00 plus the amount allowed for the next year. The fact that your value was 62000 is irrelevant. In theory it could have been 62 million, and that doesn't change anything. In theory it could have been 62 million with 500,000 in dividends, and it still doesn't change anything. 


So whoever said that capital gains, but not dividends contribute to tfsa ceiling doesn't know what they are talking about. Forget what you hear from such people. Just find the government rules for contributions and follow that.


----------



## yyz (Aug 11, 2013)

Pluto said:


> Supposing you contributed the max 31000.00, bought a stock, and it doubled, then you sold it. How much could you contribute? None. because you already put in the maximum allowed. Then supposing you took out the 62000.00? How much could you contribute? Immediately, none. The following year however, you could contribute 31000.00 plus the amount allowed for the next year. The fact that your value was 62000 is irrelevant. In theory it could have been 62 million, and that doesn't change anything. In theory it could have been 62 million with 500,000 in dividends, and it still doesn't change anything.
> 
> 
> So whoever said that capital gains, but not dividends contribute to tfsa ceiling doesn't know what they are talking about. Forget what you hear from such people. Just find the government rules for contributions and follow that.


That is not what I interpret from here where it says 

"Full amount of withdrawals can be put back into the TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which would be subject to a penalty tax."

http://www.tfsa.gc.ca/

That would mean to me that if I contributed 30000 and now it was worth 40000 and I withdraw 40000 then the next year I can contribute $5500 + the $40000 I withdrew.


----------



## Eclectic12 (Oct 20, 2010)

Pluto said:


> Justin you are mixing the value inside the tfsa with the ceiling on contributions.


+1 ...




Pluto said:


> ... Supposing you contributed the max 31000.00, bought a stock, and it doubled, then you sold it. How much could you contribute? None. because you already put in the maximum allowed.
> 
> Then supposing you took out the 62000.00? How much could you contribute? Immediately, none.


Again ... +1.




Pluto said:


> ... The following year however, you could contribute 31000.00 plus the amount allowed for the next year. The fact that your value was 62000 is irrelevant.


Close but a little off the mark ... withdrawing $62K means that the following year, the full $62K of the withdrawal can be put back plus the amount granted for the next year.

The TFSA value is relevant only in the sense that to withdraw $62K, one needs $62K in the TFSA ... if one only has used $31K of contribution room, the only source of the additional $31K is growth of the investments held in the TFSA.




Pluto said:


> ...So whoever said that capital gains, but not dividends contribute to tfsa ceiling doesn't know what they are talking about. Forget what you hear from such people. Just find the government rules for contributions and follow that.


I'd alter this to be "Whoever says that TFSA growth contributes to the TFSA contribution limit does not understand how it works."

Growth in the TFSA increases one's ability to withdraw from the TFSA.

When an withdrawal is made, the TFSA had to shrink by the same $ as the contribution room added back the following year so it is net neutral.


Cheers


----------

