One of the most common questions we hear is: “If I withdraw money from my TFSA, do I get that contribution room back?” The answer is yes—but it depends on a few important rules.

In this post, we’ll explain how TFSA withdrawals work, when you get your contribution room back, and what happens if your investments have gained or lost value.

How Withdrawals Affect Your Contribution Room

If you withdraw money from your TFSA, that amount gets added back to your contribution room on January 1 of the following year. The amount added back is based on how much you took out—not what you originally contributed.

Let’s walk through two common scenarios.

Example 1: Your Investment Grows

• You contribute $69,500 in 2020

• By the end of the year, your TFSA grows to $75,000

• You withdraw the full $75,000 in December 2020

On January 1, 2021, your contribution room will be:

• $75,000 (the amount withdrawn)

• Plus $6,000 (the new annual limit for 2021)

• Total: $81,000 in new contribution room

Because your TFSA grew in value, you’ve increased your contribution room going forward.

Example 2: Your Investment Declines

• You contribute $69,500 in 2020

• Your investments decline, and your TFSA drops to $65,000

• You withdraw $65,000 in December 2020

On January 1, 2021, your contribution room will be:

• $65,000 (the amount withdrawn)

• Plus $6,000 (new annual limit)

• Total: $71,000

In this case, you’ve permanently lost $4,500 of contribution room. That’s because contribution room is based on the amount withdrawn—not the original amount contributed.

TFSA vs. RRSP Withdrawals

TFSA contribution room works differently than an RRSP. When you take money out of an RRSP, that room is gone permanently. But with a TFSA, any amount you withdraw is added back to your contribution room in the following calendar year.

Final Thoughts

Withdrawals from your TFSA can give you flexibility, but it’s important to understand the timing and impact:

• Any amount you withdraw is added back to your contribution room next year

• If your investment grew, that growth becomes additional room

• If your investment lost value, you lose that contribution room permanently

• Avoid re-contributing in the same calendar year unless you have unused room available

If you’ve had multiple deposits and withdrawals over the years, keeping track of your actual room can be challenging. CRA records may not always be up to date—especially early in the year—so reviewing your own records is important.

If you're unsure about your TFSA strategy, we’re here to help. Reach out to Parallel Wealth to make the most of your tax-free savings.