Withdrawals from a TFSA are tax-free, for any reason, at any time. The catch is timing: the amount you withdraw is added back to your contribution room on January 1 of the following year, not the day you take it out. Re-contribute it in the same year without spare room, and you've over-contributed.
The rules in brief
- Withdrawals are never taxed and don't have to be reported as income.
- The full amount withdrawn, including growth, becomes new room on January 1 of next year.
- Re-contributing in the same year uses your current unused room.
- Moving money between institutions should be done as a direct transfer, not a withdrawal and deposit.
An example
Priya has used all her TFSA room. In March 2026 she withdraws $10,000 for a car repair. In August she gets a bonus and wants to put the $10,000 back.
- If she re-deposits in August 2026: she has no available room, so it's a $10,000 over-contribution. The CRA charges 1% a month on it until January.
- If she waits until January 1, 2027: she gets the $10,000 back as room, plus the 2027 annual limit, and can re-deposit without penalty.
Growth comes back too
Because room is based on what you withdraw, not what you contributed, a TFSA that has grown can create more room than you originally used. Contribute $20,000, let it grow to $35,000, withdraw it all, and you get $35,000 of room back the following January. This is one of the TFSA's most powerful features.
It works in reverse too. If investments lose value, you only get back what you withdraw. Losses inside a TFSA permanently shrink your room.
Switching banks: transfer, don't withdraw
If you want to move your TFSA to a different bank or brokerage, ask the receiving institution to do a direct transfer. A direct transfer isn't a withdrawal or a contribution, so it doesn't affect your room at all. Withdrawing the cash yourself and depositing it at the new institution counts as a new contribution, which can trigger an over-contribution if you don't have spare room.
Check the transfer form. Many over-contributions come from people closing a TFSA at one bank and opening one at another in the same year. Always use the transfer form.
Tax on withdrawals
There's none. TFSA withdrawals don't count as income, so they don't affect income-tested benefits such as the Canada Child Benefit, the GST/HST credit, Old Age Security or the Guaranteed Income Supplement.
If the holder dies
Naming your spouse or common-law partner as successor holder lets the TFSA pass to them intact, without using their own room. Naming a beneficiary, or leaving it to your estate, means the value at death passes tax-free but any growth after death is taxable.
Frequently asked questions
Can I withdraw from my TFSA any time?
Yes, though some products like GICs may lock in your money until maturity. The tax rules themselves have no restrictions.
When do I get my TFSA room back after a withdrawal?
On January 1 of the year after you withdraw.
Do I pay tax when I take money out of my TFSA?
No. Withdrawals are tax-free and aren't reported as income.
Can I withdraw and re-contribute in the same year?
Only if you have enough unused room from before. Otherwise it's an over-contribution until January 1.
Sources
- Canada Revenue Agency, TFSA withdrawals
- Canada Revenue Agency, Transfers between TFSAs