# TFSA boosting



## mustafaupk (Aug 31, 2012)

Forgive me if this is a stupid idea, but I have just realized that withdrawing from TFSA increases your contribution limit by the withdrawn amount, in the next calendar year. I am confused by this because it seems so easy to scam the TFSA if this is true. For example, I have just put 20K (cash, in December of 2012) in my TFSA. If I withdraw the whole amount before December 31st, then my 2013 contribution limit would be 45500 (25500 + the withdrawn 20000). 

Can someone more knowledgeable tell me if my thinking is wrong? 

Is there a minimum time for cash to sit in TFSA before it can be withdrawn?


----------



## 44545 (Feb 14, 2012)

That's not how the TFSA works.

Contribution limits are affected by past contributions as well.


----------



## Elbyron (Apr 3, 2009)

Your 2012 TFSA contribution limit is 20000. If you put in 20K cash in December 2012, your limit is now zero (maybe this is the part you forgot). If you withdraw the whole amount, and it hasn't gained or lost any value, then next year's limit will be increased by 20K. So you would then have 0 + 20,000 + 5,500 = 25500 total limit. In January 2013, our limits increase by $5,500 not by $25,500. The latter figure refers to the total amount a person could have built up between 2009 - 2013 if they had not used up any of it yet. So regardless of how much you withdraw in 2012, your limit still just goes up by $5500 plus the amount withdrawn.


----------



## mustafaupk (Aug 31, 2012)

Got it. I knew I was missing something.


----------



## Eclectic12 (Oct 20, 2010)

The withdrawals only give back the same amount of room as was taken out - so there is no boosting as it is dollar for dollar.

It does give one flexibility to transfer in stock from a taxable account, where the new TFSA contribution room is not enough. 

Consider where one has used up all TFSA contribution room in 2012 and want to transfer a stock that would be worth $8K at market value. The new TFSA rooom granted on Jan 1st, 2013 is only $5500. This means either part can be transferred or none.

But, if the TFSA (or another one in your name) have $2500 in cash, transfer out this amount by Dec 28th. Now when Jan 1st, 2013 rolls round, one has the $5500 plus the $2500 and can make the stock transfer.

Note that it would be safer to transfer out $3K because if the stock goes up too much in early Jan, one could still end up short of the needed TFSA contribution space. Say that the transfer happens $8300, then just re-contribute the remaining $200. Worst case, one has lost the interest on the $200 for a couple of weeks. 


Cheers


----------



## Eclectic12 (Oct 20, 2010)

Elbyron said:


> ... The latter figure [i.e. $25.5K] refers to the total amount a person could have built up between 2009 - 2013 if they had not used up any of it yet.
> 
> So regardless of how much you withdraw in 2012, your limit still just goes up by $5500 plus the amount withdrawn.


Both good points ... though to be more complete, the $25.5K TFSA contribution room assumes one turned 18 in 2009 or earlier and are considered a Canadian resident for tax purposes in all five years. Non-Residents keep their TFSA but do not accrue any additional contribution room.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html


Cheers


----------



## purple.platypus (Dec 10, 2012)

Related question:

Say I have put $20,000 of stuff in my TFSA and it makes really rapid gains, such that it's now worth $30,000. I take it all out today. On January 1, 2013, what will my contribution limit be? $25,500 or $35,500?

For that matter, we are all assuming the increase in the limit for next year is not retroactive. Are we sure that's true? For someone who has never contributed before (and is at least 23), do we know for a fact that their limit on January 1 will be $25,500 and not $27,500?


----------



## HaroldCrump (Jun 10, 2009)

purple.platypus said:


> Say I have put $20,000 of stuff in my TFSA and it makes really rapid gains, such that it's now worth $30,000. I take it all out today. On January 1, 2013, what will my contribution limit be? $25,500 or $35,500?


$35,500



> For that matter, we are all assuming the increase in the limit for next year is not retroactive. Are we sure that's true? For someone who has never contributed before (and is at least 23), do we know for a fact that their limit on January 1 will be $25,500 and not $27,500?


It is not retroactive


----------



## purple.platypus (Dec 10, 2012)

Thank you. Now say I have put $20,000 of stuff in my TFSA but chose my investments very unwisely, such that it's now worth $10,000. I take it all out on the day I wrote my previous post (via time travel if necessary). On January 1, 2013, what will my contribution limit be? $25,500 or $15,500?


----------



## Toronto.gal (Jan 8, 2010)

You have lots of basic questions about TFSAs, so you might want to review this helpful site.

http://taxtips.ca/tfsa.htm

The answer is $15,500 because capital losses are not tax-deductible in an account that is already *tax-free.* 

Also, lots of information here:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html


----------



## newfoundlander61 (Feb 6, 2011)

I log into to my profile at the Canadian Revenue Agency ( I set up access a while back). Surprised to see that it gives correct amounts and lets you know from what date. Just need to be aware of any deposits or transfer after that date.


----------

