# TFSA contribution room lost



## HowIsMyFinancial (May 18, 2011)

Just came across my mind that if I have my TFSA in a trading account and I lost money on my trade, that would mean my TFSA contribution room is lost, right?

If I contributed $5,000 to a trading account
For whatever reason, the value of my stocks are now $4,000 and if I liquidate everything and cash out - that would mean I would never get back that $1,000 room ?

Thanks


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## DanFo (Apr 9, 2011)

That is correct....If you liquidate the account and cash out that lost money will come out of the future contrib room...... the good tax man giveth and the good tax man taketh away...If you gamble and win big the gains are all yours but sadly so are are the losses.


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## HaroldCrump (Jun 10, 2009)

If the TFSA were truly a trading account for you, then you wouldn't cash it out.
You may sell the stock, but leave the cash in there.
In other words, don't put money you might need for a specific reason into non guaranteed investments.


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## Sasquatch (Jan 28, 2012)

It's bad enough that I've got all my RRSPs in non guaranteed investments 

Our TFSAs have gone into guaranteed investments only at this shaky current climate and I can't see that changing for a long time. 

I know the returns suck ( 3 % for the HISA @ CDF)
but at least we won't loose the principal  

But that's just me, I'm a wimp


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## OptsyEagle (Nov 29, 2009)

HowIsMyFinancial said:


> Just came across my mind that if I have my TFSA in a trading account and I lost money on my trade, that would mean my TFSA contribution room is lost, right?
> 
> If I contributed $5,000 to a trading account
> For whatever reason, the value of my stocks are now $4,000 and if I liquidate everything and cash out - that would mean I would never get back that $1,000 room ?
> ...


I think in your example, that the loss of contribution room is not the loss you should be worrying about.


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## Jungle (Feb 17, 2010)

I would reinvest it to make that money and contribution back, maybe with something less risky?


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## HowIsMyFinancial (May 18, 2011)

Jungle said:


> I would reinvest it to make that money and contribution back, maybe with something less risky?


Yeah I would do that too ...

But I havent actually lost anything though, just a thought that cross my mind


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## Eclectic12 (Oct 20, 2010)

HowIsMyFinancial said:


> Yeah I would do that too ...
> 
> But I havent actually lost anything though, just a thought that cross my mind


The question is whether the investment that is at a paper loss can recover. 

If you think it's going to keep tanking and see a better opportunity, then sell to buy the other investment. If you still have confidence in it, then stay the course.


Either way, it's likely better to leave it in the TFSA so that it can grow.
The two situations I can see a withdrawal is if you *need* the money or if you want to use the withdrawal room to do a transfer "in-kind" of an existing taxable investment.


Cheers


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## poopkorn (Jul 13, 2012)

*tfsa losses*

Hey all, new to the forum and was google searching for my answer but figured I'd post my question here... Looks like an interesting place.

So I haven't done too well in my TFSA the past couple of years. I've put in $5000 every year so have used my contribution limit of $20 000. The problem is my investments are only worth ~12000 right now... so I've lost a bit on some high risk chances. Is there anyway for me to say sell and say take all the cash out of my account and reset my contribution limit to the max again? Or am I stuck with this $12000 limit... so next year I can only have a limit of $17000 and not the maximum 25000?

I've got a decent chance to make back some of this loss in the next bit due to one of the companies finally getting their act together... but another company that I put $5000 into is now basically $300.

I suspect I'm out of luck and just have to live with this loss trying to make my limit back the hard way with gains?


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## Dibs (May 26, 2011)

Hi poopkorn, welcome to the forum and I hope you find it useful in your financial endavours! 

Unfortunately I think you are out of luck. As has been posted above, you can't "reset" your TSFA back to the max. 

I would also advise you to not to try to "make my limit back the hard way with gains", a better approach would be to re-evaluate your investing strategy and how you ended up in this situation before making the same mistakes again.


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## Toronto.gal (Jan 8, 2010)

poopkorn said:


> Or am I stuck with this $12000 limit... so next year I can only have a limit of $17000 and not the maximum 25000?


There is still so much confusion around the TFSA after 4 years.

As you know, the TFSA is tax-free, therefore, capital losses can't be tax-deductible when the account is already tax-free. 

You can carry forward unused contributions, but you can only put in the amounts that you took out, and that does not include your capital losses.

http://taxtips.ca/tfsa.htm
http://taxtips.ca/tfsa/unusedcontributions.htm

How did you manage to lose $4,700 on a $5,000 investment? Was it a penny stock?

There are many solid/undervalued companies at the moment, so you have a good chance to make some of your money back. But, as Dibs also mentioned, you might want to take some time to figure out your mistakes and perhaps do some more reading/research before you do any additional investments.

Good luck and welcome to the forum.


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## Toronto.gal (Jan 8, 2010)

HaroldCrump said:


> If the TFSA were truly a trading account for you, then you wouldn't cash it out. You may sell the stock, but leave the cash in there.


Agreed.

Also, remember that amounts withdrawn can't be redeposited until the following year.


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## Eclectic12 (Oct 20, 2010)

poopkorn said:


> Hey all, new to the forum and was google searching for my answer but figured I'd post my question here... Looks like an interesting place.
> 
> So I haven't done too well in my TFSA the past couple of years. ... Is there anyway for me to say sell and say take all the cash out of my account and reset my contribution limit to the max again? Or am I stuck with this $12000 limit... so next year I can only have a limit of $17000 and not the maximum 25000? ...
> 
> I suspect I'm out of luck and just have to live with this loss trying to make my limit back the hard way with gains?


Welcome to the forum! I highly recommend it as compared to other boards, it is friendly and most people want to help.


I believe others have clearly stated there is no way to "reset" the TFSA contribution limit where there are losses.

I am concerned that the way the question is worded - that you don't seem to be clear on what happens with a withdrawal and may be confusing the TFSA value with the TFSA contribution room available. You posted you've used up the $20K TFSA contribution room - so regardless of the value for the TFSA investments, until Jan 1st, 2013 - the available TFSA contribution room is $0. Nothing changes this.

Then on Jan 1st, 2013 - assuming you qualify, you will have another $5K TFSA contribution room added (there is a possibility of a bit extra for inflation but to date, the gov't has not changed the $5K value). The only other way that could add more TFSA contribution room is if you withdrew money from the TFSA prior to 2013. The trick here is that the money has to exist in the TFSA and that it is *dollar for dollar*. 

For example, if you withdraw $5K in 2012, your 2013 TFSA contribution limit on Jan 1st, 2013 is:
2013 $5K + prior withdrawals = $5K + $5K = $10K. The $10K is larger but since the increase was from a $5K withdrawal, there is no "reset" or "multiplier" for the contribution room.

On the other hand, if you investments had done better so that the $20K became $35K, if you withdrew $25K in 2012. 2013 TFSA contribution limit = $5K + $25K = $30K. The "reset" or "multiplier" is driven by the TFSA investments gains or losses. 

Since you have losses, like the OP - the prospects of the investments are the key. Selling at a loss to get $0.60 that is invested in something else that grows is better than watching it become $0.15 or less.

Also - revisit your investment strategy - losing more money is not going to help. Make sure to factor in that in a TFSA (or RRSP) losses destroy the contribution room, with no benefit to you. 


Final note - Bear in mind that when you have gains in the TFSA, you are more likely to sell and buy another investment that to withdraw. The only reason IMO to withdraw if you don't need the money is if you have a stock in a taxable account you want to transfer into the TFSA to pay the taxes now and have future returns tax-free. 

Example, $5K TFSA contribution room, $7K BMO stock - withdrawing $3K in 2012 will mean 2013 TFSA contribution room of $8K so that the $7K BMO likely can be transferred, depending on what it is trading for on the day it is transferred.


Cheers


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## Cal (Jun 17, 2009)

To add to that....they really don't have a loss unless they need to withdraw the money, in which case I would question why they had it in such risky assets. 

They used their contribution room, the investments have decreased in value to $12,000, but they can still use that money to invest....maybe the new investments iwll go up on value...who knows.


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## Butters (Apr 20, 2012)

I believe TFSA started 4 years ago...

I have added 5k jan 1st, for 4 years...
631.61 I have earned in interest... lol
[to be honest, i would have been taxed 33% or so on this.... 208.43 dollars saved in taxes, lololol hardly worth it for a regular savings account (at presidents choice)]

If you make less than 50 bucks in interest for the year, they don't even bother send out a T4A form

TFSA isn't as great as it seems with these low interest rates...
But if you play the market, you could risk a higher rate!


But here, Simply put....
For each calender year a TFSA is open you can add 5k *Simple as that!*
(and it carries)

A formula.... (Years open x 5k) - amount deposited = cap room

So, my cap is 20k, but I have 20k and 631.61
That's an extra 631.61 dollars I'm sneaking away making even more interest on :smilet-digitalpoint

TFSA should be used for playing the market long term, not withdrawing money


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## poopkorn (Jul 13, 2012)

*Thanks!*

Thanks for the welcome, I've been reading through a lot of the other threads and find them interesting. Seems like a good community here.

Thanks for the replies, that's generally what I thought but just checking... I understand the withdrawl concept of any cash removed from the account can't be put back in until the next year... I was just checking to see if anyone knew of a loophole where if I say shut down my account and remove all my money in say 2012 would I be able to open a new account in 2013 at the maximum 5 year limit. Kind of assumed it wouldn't work like this but wasn't entirely sure.. 

I knew what I was doing investment wise with my strategy and it was a roll of the dice on a high risk investment that to me was worth a shot, I went for some of the high risk-reward specualtive stock in my TFSA where any capital gains savings would actually be worth it. I'll get it back up there - I'm much more conservative in my regular cash stock account and my RRSP. I'm one of the lucky ones that has the free capital to max out both my RRSP and my TFSA so I was going for a home run with my TFSA... and struck out at one of my at bats  I agree, there are a lot of good values out there right now and have been loading up on undervalued companies for more of the medium to long term!


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## poopkorn (Jul 13, 2012)

*ps*

oh and just wanted to add I'm not planning on removing any of the cash from my investment account. I have sold and bought equities within it but never actually removed any money. I was just inquiring if there would be a benefit from me somehow removing it somehow having my contribution limit reset to the 5000 x 5 year max of 25 000. I understand this isn't possible now


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## Axcell (Mar 25, 2011)

poopkorn said:


> oh and just wanted to add I'm not planning on removing any of the cash from my investment account. I have sold and bought equities within it but never actually removed any money. I was just inquiring if there would be a benefit from me somehow removing it somehow having my contribution limit reset to the 5000 x 5 year max of 25 000. I understand this isn't possible now


Isn't it $20,000 max?

2009, 2010, 2011, 2012 = 4 years x $5000 = $20k. In 2013, it would be $25k.

Somebody correct me if I am wrong?


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## poopkorn (Jul 13, 2012)

Axcell said:


> Isn't it $20,000 max?
> 
> 2009, 2010, 2011, 2012 = 4 years x $5000 = $20k. In 2013, it would be $25k.
> 
> Somebody correct me if I am wrong?


Yup it's 20k max. I was talking about next year - sorry to confuse.


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## Eclectic12 (Oct 20, 2010)

SheaButters said:


> ...But here, Simply put....For each calender year a TFSA is open you can add 5k *Simple as that!*... TFSA should be used for playing the market long term, not withdrawing money


Assuming the individual qualifies for all four years the TFSA has existed and makes no withdrawals, then this formula works but is incomplete. 

The benefit of withdrawals will depend on one's situation. 

For example, I used the downturn of 2009 to contribute cash to my TFSA, bought a split share that paid 40% of the purchase price back in cash distributions over two years. Then I sold for a capital gain of 225%. The total amount (original + gains) were withdrawn to pay down my mortgage, tax free. The following year, as I did not have a lot of spare cash, I contributed "in-kind" a REIT that was down temporarily, for a small capital gain. 

Without the withdrawal from the TFSA in the proceeding year, I would only have been able to transfer a small portion of the REIT. And as an added bonus, not only am I paying less investment taxes today, I no longer have to track the Return of Capital (RoC) portion of the cash distributions (i.e. less bookkeeping).

So I'm happy with the results of my withdrawal and "in-kind" re-contribution to my TFSA.




Axcell said:


> Isn't it $20,000 max?
> 2009, 2010, 2011, 2012 = 4 years x $5000 = $20k. In 2013, it would be $25k.
> Somebody correct me if I am wrong?


Maybe ... if you mean "the max the gov't has granted to someone who qualifies (i.e. 18+ in 2009 & a Canadian resident)" - then yes.

If you mean "what is the max a qualifying individual can currently contribute", then contributions and withdrawals will also have to be factored in. 

As an example, take my situation on Jan 1st, 2012. I'd been granted $20K (4 x $5K) by the gov't, contributed $15K and withdrawn $6K in 2011. So I started 2012 with available TFSA contribution room of $11K.


Cheers


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