The best thing about a Tax-Free Savings Account (TFSA) is that it allows your investment to grow tax-free as long as the money is inside the account. It means you can reinvest the dividends, sell shares, and use the sales proceeds to buy more shares without affecting your contribution room. The only condition is that you should not withdraw money from your TFSA. Once you withdraw that money, reinvesting it will count towards your TFSA contribution, which is limited.
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Common mistakes to avoid when reinvesting in your TFSA
Reinvesting withdrawn amount: The Canada Revenue Agency (CRA) updates your contribution limit on January 1, where the new annual limit plus the last year’s withdrawals is added. So, if you withdrew $2,000 in November 2025, the CRA will update your TFSA limit on January 1, 2026, to $9,000. The $7,000 annual contribution limit for 2026 plus the $2,000 withdrawn in 2025.
Transacting between multiple TFSAs: Note that even if you have two TFSAs in different banks, your cumulative 2026 contribution limit for both accounts is $7,000. Opening multiple TFSAs will not increase your contribution limits. In fact, if you invested $1,000 in one TFSA in January 2026, withdrew that amount in February 2026, and put $1,000 in another TFSA in June 2026, the CRA counts it as a $2,000 TFSA contribution for 2026.
A good TFSA habit is to keep it simple:
- Only have one TFSA.
- Only put the contribution limit in the TFSA.
- Do not frequently add to and withdraw from a TFSA.
How to use your TFSA contribution room to build a monthly cash flow
A direct way to build cash flows in a TFSA is investing in monthly dividend stocks. However, it is not the most efficient use of TFSA’s tax-free growth of investments.
Step #1: Invest in growth stocks
If you don’t want monthly payouts 10 to 15 years later, consider investing your contribution in growth stocks. These growth stocks can be seasonal, like Air Canada (TSX: AC) and Shopify, or cyclical, like Cenovus Energy, which surges when oil prices rise. You could invest in the dip and, when the stock completes its seasonal or cyclical rally, sell it near the peak.
Let’s look at Air Canada. It enjoys two seasonal rallies: one from May to June, as summer leisure travel picks up momentum, and the other during the holiday season from November to December. Some years, Air Canada may not see a rally due to issues such as high fuel prices, pilot strikes, or faulty engines. However, it will see at least one seasonal jump as the issue resolves. This seasonal jump can be 40-50%, making up for the wait. When the stock surges in June or December, sell it on the last day of the month.
Step #2: Book profits from growth stocks
While the above stocks are also worth holding for the long term, you can sell stocks worth the gain and use that capital gain to buy monthly dividend stocks. Suppose you invested $10,000 in Air Canada on May 1, 2026, and sold it on July 2, 2026; you received $13,434. Now, instead of selling all shares, you can sell shares worth $3,434, which is the profit, and let the $10,000 stay invested for the next seasonal rally. Buying at the dip is a privilege, and you should not let go of that cost base.
| Stock | Purchase price | Purchase date | Invested Amount | Number of shares purchased | Stock price July 2, 2026 | Investment value |
| AC | 18.26 | May 1 2026 | $10,000 | 547 | $24.56 | $13,434 |
The $3,400 profit can be invested in monthly dividend stocks. Every profit you book can be diverted to monthly dividends.
Step #3: Invest the profits in dividend stocks without withdrawing from the TFSA
Some good dividend stocks that also offer a dividend-reinvestment plan (DRIP) include Manulife Financial and CT REIT. You can invest the $3,400 capital gain from Air Canada in the DRIP of these two stocks. The dividends will buy more stocks and compound returns. A single $10,000 investment can help you accumulate dividend stocks only from the seasonal profits. And since it is happening inside a TFSA, you pay no capital gains or dividend tax.
