Do I pay tax when I withdraw money from my TFSA in Ontario?
No — withdrawals from a Tax-Free Savings Account (TFSA) are completely tax-free in Canada, including for Ontario residents. Unlike RRSP withdrawals, which are included in income and taxed at your marginal rate, amounts taken out of a TFSA are not reported as income on your T1 return.
Growth inside a TFSA — interest, dividends, and capital gains — also accumulates tax-free. This makes TFSAs a powerful shelter for investment income that would otherwise be taxed annually.
When you withdraw from a TFSA, the amount you withdrew is added back to your contribution room at the start of the following calendar year. This means you can re-contribute later without permanently losing room. However, re-contributing in the same calendar year as the withdrawal (beyond your remaining room) causes an over-contribution, which triggers a CRA penalty tax of 1% per month on the excess. Ontario follows the federal TFSA rules — there is no separate provincial TFSA regime. If you are unsure of your available contribution room, the CRA's My Account online portal shows your current room.
Key takeaways
- TFSA withdrawals are completely tax-free at both federal and Ontario levels.
- Growth inside the TFSA is also sheltered from annual tax.
- Withdrawn amounts restore to your room on January 1 of the following year.
- Over-contributing triggers a 1%-per-month CRA penalty tax.