Reinvesting TFSA Withdrawals

Question: My wife put $10,000 in my TFSA and I put in $10,000 and now the total TFSA is $25,000 after growth. If I took out the money from the TFSA to invest in a rental property, would any of the profits on the income be attributed back to my wife? And if so, how do you determine the percentage that would apply? My gut says it would be 40% ($10,000/$25,000) as I would assume that the growth portion of $5,000 belongs to the TFSA account holder as there is not attribution while in the TFSA. – Ed M.

Gordon Pape answers: Technically, your wife is not allowed to contribute to your TFSA. Only the plan holder can make contributions. She can give you the money with no income attribution, but the contribution must be made by you. So let’s assume that she in fact gave you the money and you made the contribution so everything is above-board.

There is no tax applicable to any money withdrawn from a TFSA so nothing is attributed back to your wife in that sense. However, the rules state that the exemption from the income attribution rules only applies as long as the money remains in the plan. If it comes out and is reinvested in a rental property, then the income earned on her portion of $10,000 would be attributed back to her.