Your contribution room is determined at the beginning of each tax year. If you have $5,000 in contribution room, and make a $5,000 deposit to your TFSA, then you cannot make further contributions to your TFSA in the same tax year, even if you make a withdrawal. Withdrawn amounts will increase your contribution room, but not until the next tax year.
The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month. This means there will be a tax payable even if the excess amount is withdrawn in the same month in which it is contributed. You may also be charged a penalty of 100% of any income earned from the excess contribution.
Transferring Your Tax Free Savings Account
If you want to transfer your TFSA to another financial institution, DO NOT just withdraw the funds, then re-deposit into an account at the new financial institution. This would constitute a withdrawal, and you cannot re-contribute the funds until the following year. You must get the new financial institution to do the paperwork to transfer the funds in the correct manner.
For more information of TFSA’s please visit the Tax Tips Website.