A $20,000 Tax-Free Savings Account (TFSA) withdrawal can be completely tax-free. Put that same $20,000 back at the wrong time, however, and it could suddenly cost $200 a month.
Welcome to one of the TFSA’s least lovely technicalities.
Canadians can withdraw money from a TFSA whenever they want without paying tax on the withdrawal. The problem comes afterward. The contribution room created by that withdrawal doesn’t return immediately. It comes back on January 1 of the following calendar year.
That timing difference is where an innocent-looking transfer can become expensive.
Source: Getty Images
Wait for the calendar
Suppose you’ve already used all your available TFSA room. You withdraw $20,000 in October to cover an expense. The money unexpectedly comes back in November, so you put the $20,000 straight back into your TFSA. That’s an over contribution. The Canada Revenue Agency charges 1% of the highest excess TFSA amount for every month the excess remains. On $20,000, that’s $200 per month. Wait until January, however, and that $20,000 withdrawal will generally have been added back to your room.
There’s an important exception. If you already had at least $20,000 of unused contribution room, you could contribute the money during the same year because you’re using existing room rather than the room generated by the withdrawal. The 2026 annual TFSA dollar limit is $7,000, but personal room depends on your history. Canadians should track contributions and withdrawals themselves because CRA information can lag.
There’s another trap when moving accounts. If you want to switch TFSA providers, ask the receiving institution for a direct transfer. Taking the cash out yourself and depositing it into another TFSA counts as a new contribution. Those rules are worth remembering because money left inside a TFSA has something rather valuable to do while you’re not moving it around. That’s to compound tax-free.
Let the account work
Fortis (TSX: FTS) is the sort of stock that demonstrates why leaving long-term TFSA money alone can be useful. Fortis owns regulated electricity and natural-gas utilities across Canada, the United States and the Caribbean. Rather than depending heavily on commodity prices or consumer spending, it earns regulated returns on infrastructure used to deliver power and gas.
The company now has a $28.8 billion capital plan covering 2026 through 2030. Fortis expects those investments to increase its rate base, essentially the assets on which regulators allow it to earn a return, from $42.4 billion in 2025 to $57.9 billion by 2030.
That works out to roughly 7% annualized rate-base growth. Its Tilbury Phase 1B LNG expansion in British Columbia has also been approved, providing another potential source of investment beyond the existing plan.
Keep the dividends compounding
Fortis has increased its dividend for 52 consecutive years and currently targets another 4% to 6% annual dividend growth through 2030. At roughly $74.98 per share, the current $0.64 quarterly dividend produces a yield around 3.4%.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| FTS | $74.98 | 133 | $2.56 | $340.48 | Quarterly | $9,972.34 |
Reinvesting those payments can gradually purchase more shares, which can generate still more dividends. It’s one reason reliable Canadian dividend stocks can become useful when held for years inside a TFSA.
Bottom line
There are risks. Fortis trades around 22 times trailing earnings, so it isn’t especially cheap. Its enormous capital program also requires financing, meaning stubbornly high interest rates could increase borrowing costs. Regulatory decisions can affect the returns Fortis earns on new investments.
Even so, TFSA withdrawals aren’t the problem. Forgetting when the contribution room comes back is. If you withdraw money this year and have no unused room remaining, resist the temptation to replace it until January 1. When moving between providers, use a direct TFSA transfer instead.
Those few calendar pages can be the difference between paying the CRA 1% every month and leaving more of your money invested in companies such as Fortis, where dividends and earnings can keep compounding without the tax bill tagging along.
