To withdraw from a TFSA, you ask your financial institution to move money out of the account, and the cash lands in your chequing or savings account within a few business days. You do not report the withdrawal, you do not pay tax on it, and you do not contact the Canada Revenue Agency. The one thing that trips people up is timing: the contribution room you free up by withdrawing does not come back until January 1 of the following year, so re-depositing the money in the same calendar year can push you into an over-contribution penalty.
Making the Withdrawal
Your bank or brokerage handles the whole transaction. Most institutions let you start a withdrawal online by transferring cash from the TFSA into a linked account. You can also do it by phone or at a branch. A cash withdrawal usually settles in two to five business days.
The CRA charges nothing for a withdrawal. Your institution might, especially for a full account closure or a transfer out. Transfer-out fees at major Canadian banks often run around $150 plus tax, and some receiving institutions will reimburse that cost if the balance you’re moving is large enough.
Cash or In-Kind
You have two ways to take money out. A cash withdrawal sells the holdings inside the TFSA and deposits the proceeds. An in-kind withdrawal moves the actual securities into a non-registered investment account without selling them.
For an in-kind transfer, the fair market value of the securities on the date of the transfer is the amount reported to the CRA as the withdrawal. That same value becomes the new cost base for those investments in the non-registered account. The transfer itself triggers no immediate tax; capital gains or losses only arise when you later sell the securities from the non-registered account.
What You Owe and What You Report
Nothing, on both counts. TFSA withdrawals are entirely tax-free. The money is not income, and it does not go on your T1 return. You will not receive a T-slip. That treatment covers the original contributions along with any interest, dividends, and capital gains earned inside the account.1Canada Revenue Agency. Tax-Free Savings Account (TFSA), Guide for Individuals
Because the withdrawal never enters your net income, it does not reduce any income-tested federal benefit. Old Age Security, the Guaranteed Income Supplement, the GST/HST credit, the Canada Child Benefit, and the Canada Workers Benefit are all calculated on net income, and TFSA withdrawals stay outside that calculation.2Canada Revenue Agency. Tax-Free Savings Account – What Is a TFSA For retirees managing income against the OAS clawback threshold, that is often a reason to draw from a TFSA before an RRSP.
Your financial institution files an annual information return with the CRA showing every contribution and withdrawal for the calendar year.3Canada Revenue Agency. Tax-Free Savings Account Annual Information Return That is how the CRA learns about your withdrawal. You do nothing.
The Re-Contribution Rule
Every dollar you withdraw gets added back to your contribution room, but on January 1 of the year after the withdrawal, not the day you take the money out. This single timing rule causes more accidental over-contributions than anything else.
The CRA’s formula for your available room each year is:
- The current year’s TFSA dollar limit ($7,000 in 2026)
- Plus unused room from previous years
- Plus withdrawals made during the previous year
- Minus contributions already made in the current year
Withdrawals from the current year are not in that formula. If you take out $10,000 in March and put $10,000 back in September, the CRA reads the September deposit as a fresh contribution against your existing room, not a replacement. If you did not already have $10,000 of unused room, you have over-contributed.4Canada Revenue Agency. Calculate Your TFSA Contribution Room
You can see your room in CRA My Account under the TFSA section. The number there may be stale, because financial institutions report on an annual cycle. If you have contributed in the current year, subtract those deposits from whatever the CRA shows, and track your own activity as you go.
Transferring to Another TFSA
If your goal is to move the account to a different institution rather than pull the money out for personal use, ask for a direct transfer. A direct transfer sends the funds or securities from one issuer straight to the other, with nothing passing through your hands. It does not count as a withdrawal and does not touch your contribution room.5Canada Revenue Agency. How to Contribute to a TFSA
Do not withdraw the money to your bank and then re-deposit it at the new institution in the same year. That is a withdrawal followed by a new contribution, subject to the January 1 timing rule, and you will likely over-contribute.
The Over-Contribution Penalty
Contributing beyond your available room triggers a penalty of 1% per month on the highest excess amount for each month it stays in the account.6Justice Laws Website. Income Tax Act – Section 207.02 A $5,000 excess sitting for six months is $300 before you even hear from the CRA.
If you realize you have over-contributed, withdraw the excess right away. Every month it stays is another 1% charge.7Canada Revenue Agency. If You Over-Contribute to a TFSA
If You Are a Non-Resident of Canada
You can still withdraw from your TFSA after leaving Canada, and the withdrawal remains free of Canadian tax. Two things change while you are non-resident: you accumulate no new contribution room for any full year of non-residency, and any contribution you make while non-resident is hit with a 1% monthly tax for every month the money sits in the account.8Canada Revenue Agency. Non-Resident and TFSA Keep the account open, take withdrawals as needed, and do not contribute until you re-establish Canadian residency.
If You Are a U.S. Citizen or Green Card Holder
The IRS does not treat the TFSA as a tax-sheltered account. Interest, dividends, and capital gains inside the TFSA are taxable each year on your U.S. return, even though Canada treats them as tax-free. Since there is no Canadian tax on that income, a foreign tax credit cannot offset the U.S. liability.
Many cross-border tax professionals also report TFSAs as foreign trusts for U.S. purposes, requiring annual filings on Forms 3520 and 3520-A, with penalties for failure to file starting at $10,000 per year.9Internal Revenue Service. About Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner Canadian mutual funds held in the TFSA may separately qualify as passive foreign investment companies, adding Form 8621 to the return. Talk to a cross-border specialist before you contribute to or withdraw from a TFSA.