I have clients asking if it calculates dividends as contributions within TFSA. Others think they lose the contribution room when they evacuate, or TFSA is only used for short-term savings. These are not outliers; they are Canadians trying to do the right thing every day and tripping up by the country’s most misunderstood accounts.
Since its launch in 2009, TFSA has become a core part of its financial plan. But despite its popularity, misunderstandings are flooded with them, and they have caused losses to Canadians’ real money.
Here are seven questions I asked most frequently, each introduced in the state of anonymous client offices, so you can see the myth displayed in practice and how to handle it.
1. “If my TFSA earns dividends or capital gains, do these amounts count as new donations?”
Customer scenario:
Sarah holds $80,000 in her TFSA for Vanguard All-Equity ETF (VEQT). In January, she noticed a $1200 cash dividend and emailed me: “Do I just use a $1200 donation room?”
answer: no. Investment income from dividends, interest or capital gains has zero impact on your contribution room. The room is created only by government-set annual restrictions + unused spaces from the past few years + withdrawals from the previous year. The growth within TFSA is completely tax-free and will not reduce future contribution capabilities.
2. “I think the limit is $7,000 this year. How do people contribute $20,000 or $30,000 (or more) in a year?”
Customer scenario:
Mike, 35, never contributed to TFSA. After selling the rental apartment, he wanted to deposit $50,000 but was worried that it would violate the rules.
answer: The TFSA Contribution Room is based on your age – you start accumulating it at the age of 18. Unused rooms are always moving forward, with withdrawals last year returning on January 1.
So if you have empty space, then large sums are totally legal. Always verify your personal restrictions by checking your CRA My Account and Before making the transfer, your own records. (CRA records are not always up to date.)
