TFSA growth/limit confusion

  • Last Updated:
  • Jul 16th, 2015 12:20 am
Jul 14, 2015
1 posts

TFSA growth/limit confusion

If I invest in TFSA and want to continue re-investing its dividend income for growth, Is the dividend's dividend going to come out of my next year's TFSA limit or it grows tax free? For example, if I invest 10K under TFSA and make 20% in dividends and then automatically buy more stocks using the income (i.e. 2K). Next year I earn 50% and now I have 1K more. Again, I decide to invest 1K as well and make more money following year. All this sum is going to grow tax free or it will come out of my yearly TFSA limits?
In other words, TFSA's revenue is your tax free money but what about the money earned from that tax free money? How far are you allowed to go?
RRSPs grow tax free and re-investing the earned dividends dont come out of that year's RRSP limit, not sure about TFSA.
2 replies
Deal Addict
Dec 5, 2005
1134 posts
TFSA works like the RRSP where your gains/dividends etc do not affect your contribution room going forward.
Deal Addict
User avatar
Oct 9, 2005
1105 posts
Your current TFSA contribution room is only impacted by:

+ New yearly room
+ Withdrawals from prior years
- Contributions from prior and current years

Withdrawals and contributions are monies moved out/in of a TFSA except for qualifying transfers to another TFSA issuer (e.g. brokerage/bank) into another TFSA. As long as your dividends or any other amounts don't exit your account, there is no change to your room.