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TFSA December Maneuver

Peter Katevatis - Dec 15, 2017
As the malls get all decked out in holiday décor and every elevator chimes Christmas music, it is time to visit your end-of-year investment strategies. ‘Tis the season to be jolly, and for investors to crystallize tax losses by selling losing posi

As the malls get all decked out in holiday décor and every elevator chimes Christmas music, it is time to visit your end-of-year investment strategies.

 

‘Tis the season to be jolly, and for investors to crystallize tax losses by selling losing positions by the end of the year.  This year, the last day for Canadians to sell Canadian (TSX, TSXV, CSE) or US (NYSE, Nasdaq) listed securities is Dec 27th, 2017.

 

First proposed by Katevatis Wealth Management in December 2012, there is another year end strategy to consider and it concerns your Tax Free Savings Account (TFSA).  One of the key features of the TFSA is that if you make any withdrawals you get the room back, but not until January of the following year.  This motivates most investors to leave their investments in the TFSA all year.  However, there is a fully legitimate strategy that I have named the TFSA December Maneuver or TDM.

 

TDM is not to be confused with North Vancouver’s celebrity personality, Terry David Mulligan.  It is a simple strategy to increase your TFSA contribution room for the following year.

 

TDM - The December Maneuver

 

If you have any cash in your TFSA and you do not plan on making a purchase by the end of the year, it makes sense to remove the cash from your TFSA in December.  This “removal” or de-registration will be added to your TFSA Contribution limit on January 1st, 2018.  Here is an example:

  • Investor has contributed $40,000 over the past 9 years and has never pulled funds out of their TFSA.  
  • The $40,000 is invested in several equities and funds and there is $4,000 cash left over. 
  • If the investor removes the $4,000 before the end of December, their 2018 TFSA Contribution limit would be calculated as follows:
    • Excess Contribution Room - $12,000 (balance of cumulative $52,000 total contribution amount from 2009)
    • Previous Year’s Deregistration - $4,000 (cash removed)
    • 2018 TFSA Annual Limit - $5,500
    • NET 2018 TFSA Contribution Limit - $21,500

 

The idea behind the TDM is that it provides the investor the maximum amount of flexibility for the upcoming year.  You can contribute cash or shares, bonds, mutual funds and more as a contribution “in-kind”, if you don’t have excess cash.

 

If you have a fear of acronyms and have avoided the TFSA, the cumulative limit since 2009 is going to be $57,500 for 2018, assuming you have been of legal age (18 yrs old) since 2009.  If you have had multiple TFSA accounts at multiple institutions with capital going in and out you might be very confused on what your current limit is.  Beware the limit!

 

I highly recommend that investors look up their own personal limit using the CRA My Account website as it is the only official way to avoid the onerous penalties for overcontribution.

 

If you have any questions regarding the TFSA account, please do not hesitate to contact me.