Examples – Qualifying portion of a withdrawal

In 2024, Joelle begins the year with a TFSA contribution room of $7,000.

Joelle's contributions and withdrawals for 2024 are the following amounts:

Joelle's first two contributions, in April and May, reduced her TFSA contribution room to zero. Since her June withdrawal does not get added back to her contribution room until the following year, her August contribution caused an excess TFSA amount of $2,000 for that month. Her September withdrawal of $1,500 would be considered a qualifying portion of the withdrawal in computing her highest excess TFSA amount for the following month, October. An excess TFSA amount of $500 stays until the end of the year and she will have to pay a 1% tax for the months of August to December.

Joelle's tax would be calculated as follows:

• highest excess TFSA amount per month for August and September was $2,000. Tax of 1% per month on the highest excess amount is $40 ($2,000 x 1% x 2 months).
• highest excess TFSA amount per month for October to December was $500. Tax of 1% per month on the highest excess amount is $15 ($500 x 1% x 3 months).

Joelle's withdrawals from her TFSA will be added to her TFSA room at the beginning of 2025.

Since opening his TFSA in 2013, Gilles, who is 21 years of age and a Canadian resident, contributed the maximum amount he could contribute to his TFSA each year. On March 3, 2024, he contributed an additional $9,000. Since Gilles' TFSA contribution room at the beginning of 2024 was only $7,000 (the TFSA dollar limit for 2024), his contribution of $9,000 on March 3rd resulted in an excess TFSA amount of $2,000.

On May 17, 2024, Gilles withdrew $3,700 from his TFSA. The qualifying portion of this withdrawal was $2,000, since this was the maximum amount that eliminated the excess TFSA amount in his account.

No part of the $1,700 portion of his withdrawal (the full amount of $3,700 less the qualifying portion of $2,000) could have been used in the year to reduce any later excess TFSA amount. In other words, if Gilles had made a new contribution of $1,000 on July 6, 2024, it would still have resulted in an excess TFSA amount of $1,000, as of that date, even though Gilles previously withdrew $1,700 more than his excess TFSA amount on May 17, 2024.

From the situation above, if Gilles had withdrawn $1,400 on May 17, 2024 (instead of withdrawing $3,700), the qualifying portion of the withdrawal would have been the full $1,400, since the entire amount would have reduced (but not fully remove) his previously determined excess TFSA amount of $2,000.

In this case, an excess TFSA amount of $600 would remain in his account as of the May 17, 2024 withdrawal (the previously determined excess TFSA amount of $2,000 minus the $1,400 qualifying portion of the withdrawal). If, in this scenario, Gilles had made a new contribution of $1,000 on July 6, 2024, it would result in an excess TFSA amount, as of that date, of $1,600 ($600 + $1,000).