Hi

One thing confuses me about TFSA is that suppose you invest $ 5000 on Jan 01, 2009 in saving account interest per Annum ( assuming the rate remain same) and you want to withdraw say $ 3,000 on March 01'09. But now on April 01'09 you want to put it back the amount to TFSA unfortunately as per CRA guideline we can not do it in the current year so you will end up investing in non TFSA account and 100% of interest earned is now taxable income for $3000. One end government wants us to save money but on other end to pay more tax?

Any thoughts or comments from an expert

AFAIK,

if you withdraw $3000 in March 2009, you won't be paying taxes on the income on $5000 until you withdraw the money (i.e. from Jan - March 2009)

After you withdraw the money, you are still left with $2000 in your account and you will continue to pay no tax on the income from this amount. However, you will have to pay taxes on the $3000 that you withdrew.

Furthermore, you won't be able to contribute to the TFSA for that year as you have already used up the max contribution for that year. However, for the next year, I believe you can contribute $5000 (for 2010) + $3000 (amount that you withdrew in 2009). Please confirm this with a financial professional.

I guess if you want to save the taxes for the entire year, you should not withdraw the money.

Quote:

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Originally posted by ash_canada
After you withdraw the money, you are still left with $2000 in your account and you will continue to pay no tax on the income from this amount. However, you will have to pay taxes on the $3000 that you withdrew.

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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

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pratickm - thanks for correcting my post. It should have read ... income from $3000 from Mar - Dec 2009