What happens when you withdraw from a TFSA

Taking money out of a Tax-Free Savings Account is usually the easy part. The withdrawal is generally tax-free — and so are the interest, dividends, and capital gains sitting with it. The part that trips people is the room. Any amount you withdraw is added back as available contribution room the next calendar year on January 1, not the day you take it out.

This article stays on TFSA withdrawal rules for tax year 2026: what is tax-free, when room comes back, the same-year recontribute trap, federal benefits, and the cases where a withdrawal is not tax-free. If you are still deciding whether the next dollar belongs in a TFSA, an RRSP, or an FHSA, start with the 2026 which-to-fund-first guide and come back here for taking money out.

Withdrawals are generally tax-free

CRA is plain on What is a TFSA: any contribution you make, and any income you earn through interest, dividends, or capital gains, is generally tax-free — even when you make a withdrawal. You can take funds out when you want.

Unlike an RRSP, contributions you make to a TFSA are not tax deductible. The room math — including the $7,000 dollar limit added 1 January 2026 — lives in TFSA contribution room for 2026.

To withdraw, go through the issuer that holds the account. Depending on the investments, you can generally take money out any time during the year. The issuer reports those withdrawals to CRA by the end of February of the next year so CRA can adjust next year’s room.

You do not need earned income to open or contribute. To open a TFSA you must be a resident of Canada for income tax purposes, 18 or older, and have a valid SIN. In some provinces and territories you must be 19 to enter a contract; after you turn 19 you may open the account and carry over the room from the year you turned 18. New residents start in the year of residency. CRA’s opening page does not state an upper age limit.

Room comes back next 1 January — not today

When you take money out, it does not immediately create new available room. CRA’s withdrawals page is explicit: the amount is added back as available contribution room on January 1 of the next calendar year.

Same wording on Before you contribute: any amount you withdraw during the year is added back the next calendar year on January 1.

CRA’s official room formula on Calculate your TFSA contribution room puts last year’s withdrawals on their own line:

• this year’s dollar limit
• plus unused room from previous years
• plus withdrawals made the previous year
• minus contributions already made this year

Qualifying transfers, exempt contributions, and specified distributions have no effect on available room.

CRA’s Alex example on that page: unused room at the end of 2025 is $6,000 after a $1,000 contribution, and a $4,000 withdrawal in October 2025 does not change 2025 room. At the start of 2026 the math is $6,000 unused + $4,000 prior-year withdrawal + the $7,000 2026 dollar limit = $17,000.

CRA My Account can be behind. Records for 2025 were still being processed in April 2026. CRA tells holders to use their own financial records before they contribute — not the portal number. Issuers only send a year’s transactions by the end of February of the following year, so a mid-year screen can look like leftover room you do not have.

The same-year recontribute trap

CRA’s how-to-contribute page is just as direct: never re-contribute all or part of a withdrawal in the same calendar year unless you know you have enough unused contribution room available.

Do this / don’t do this — same-year recontribute

• Do this: Wait until next 1 January, or put money back only if leftover unused room is already on your records.
• Don’t do this: Re-contribute the same dollars this calendar year when this year’s room is already used. That is excess, even if the cash “came from” the TFSA.

That is the usual gap-between-paycheques trap. You take money out, then put the same amount back when the cash shows up again. If this year’s room is already used, the recontribution is excess — even though the money “came from” the TFSA.

CRA’s Taylor example, dated 2026: on 1 January her available room is $7,000. She contributes $4,000 on 10 January, which leaves $3,000. She withdraws $4,000 on 10 February. Room stays at $3,000 — the withdrawal does nothing this year. On 2 October she puts $3,500 back to “replace” some of the February withdrawal. That is a $500 over-contribution. To replace the full $4,000 she has to wait until 1 January 2027, when the withdrawal is added back along with that year’s dollar limit.

There is no 60-day lookback. A TFSA is a calendar-year account. A January deposit is that year’s contribution. The RRSP 60-day window is a different calendar — see RRSP deduction vs refund planning. The 2026-tax-year date in 2027 is not yet posted.

Gains, losses, and one pool of room

You can hold more than one TFSA. Room is still one pool. A contribution at a second bank uses the same room. Opening another account does not create a second annual limit.

Investment results do not change room. CRA is explicit on Before you contribute: changes in the value of your TFSA investments do not affect contribution room. Earnings do not decrease it. Losses do not increase it.

A loss is not a withdrawal. CRA’s how-to-contribute page warns: if an investment loses value, that loss is never added back as available room. Putting more in to “top the balance back up” is a new contribution. If you already used this year’s room, that top-up is excess.

Growth you leave in the account stays generally tax-free inside the TFSA. It does not buy extra room. When you do withdraw, CRA adds back the amount you took out — including growth you cashed — next 1 January. That is why a withdrawal of earnings still shows up as “withdrawals made the previous year.”

Direct transfer vs withdraw-and-move

To move a TFSA from one issuer to another, do a direct transfer through the issuer. CRA’s how-to-contribute page is blunt: if you withdraw your own funds and re-contribute them to another TFSA, you may over-contribute by mistake. The withdrawal does not restore room until next 1 January, and the new deposit counts as a contribution now.

A few related edges that are not TFSA-to-TFSA transfers:

• RRSP → TFSA is not a tax-free transfer. CRA treats it as an RRSP withdrawal at fair market value.
• There is no direct TFSA ↔ FHSA transfer. TFSA out is generally tax-free (room back next 1 January); FHSA in is a new contribution. FHSA to TFSA is a taxable withdrawal plus a new TFSA contribution — see FHSA rules for a first home.

Benefits and credits (what CRA actually says)

CRA says income earned in a TFSA does not impact federal income-tested benefits and credits. You can also withdraw funds at any time, for any reason, without affecting your eligibility for federal benefits and credits.

On What is a TFSA, CRA lists those federal benefits as Old Age Security (OAS), the Guaranteed Income Supplement (GIS), and Employment Insurance (EI). The federal credits listed are the Canada child benefit (CCB), the Canada workers benefit (CWB), and the goods and services tax (GST) credit.

CRA does not publish a dollar cutoff on that list. If a benefit has its own income test, confirm it on the official page for that program.

When a withdrawal is not tax-free

Do not over-claim “always tax-free.” CRA’s opening page is careful: any funds you withdraw are tax-free as long as there are no excess amounts, non-resident contributions, or non-permitted investments in the account.

CRA also warns that TFSA holders who invest “with the frequency and experience of a professional trader” may have the account deregistered and any income earned taxed as business income — What is a TFSA.

Non-residents may hold a TFSA but cannot contribute tax-free. You may withdraw as a non-resident tax-free. Do not re-contribute while you are a non-resident — any re-contribution is a taxable non-resident contribution. Room is still added back next 1 January, but you cannot make tax-free contributions until you are a resident again. A non-resident contribution is taxed 1% per month.

Over-contribution: 1% a month, no cushion

Any excess amount in your TFSA is taxable at 1% per month. CRA calculates it on the highest amount of excess in the account for each month the excess remains. The tax applies from the first extra dollar. There is no $2,000 RRSP-style cushion.

File Form RC243 (the TFSA return) and Schedule A. Submit the return, any additional forms, and your payment by June 30 of the calendar year after the year the tax applies — so 2026 excess tax is due 30 June 2027.

CRA’s own example: over-contribute $2,000 in June and remove it in September, and you owe $20 for each of June, July, August, and September ($80). Remove it later in June and you still owe the June month — $20. Withdraw only part of a larger excess and the 1% still applies to the highest excess that sat in the account that month.

A deliberate over-contribution may be taxed at the 100% advantage rate. Do not treat a small overage as a harmless rounding error.

Non-residents who also over-contribute can face two separate 1% monthly taxes — one on the excess, one on the non-resident contribution.

The cleanest fix is not to create the excess: use your own records, treat My Account as delayed, and do not recontribute a same-year withdrawal unless leftover room is real. If an excess is already in the account, withdraw it as soon as you can. You still have to file the TFSA return.

How this differs from an RRSP or FHSA

A regular RRSP withdrawal is income. It does not restore deduction room. Room comes from prior-year earned income and unused room, not from taking money out. More on that timing: RRSP deduction vs refund planning.

A qualifying FHSA withdrawal is tax-free and not repaid, but it does not restore FHSA participation room. After the first qualifying withdrawal, further FHSA contributions are not deductible. There is no direct TFSA ↔ FHSA transfer. Details stay in FHSA rules for a first home.

Dollar limits for every registered account sit on the contribution limits cheat sheet.

The live TFSA room tool includes the withdrawal add-back on the next 1 January. Start a 30-day free trial to keep cash, room, and the next dollar in one place.

This is general information for tax year 2026, not tax advice and not a CRA publication. Withdrawals are generally tax-free only if there are no excess amounts, non-resident contributions, or non-permitted investments. Confirm leftover unused room from your own records before you recontribute in the same year.