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I will be doing the same. I got the idea from a blog post by Canadian Capitalist, so I thought it would be fine. I did not think it would be an issue, because the CRA allows you to have TSFAs at more than one institution. I suppose there could be a rule that contribution room due to withdrawals can only be re-deposited in the same account the funds were originally withdrawn from. I haven't seen that anywhere.

To be safe I will withdraw the money in late 2009, leave it in regular taxable savings at PC, and not transfer it at another institution until this is cleared up. I'd rather leave the money at PC than pay their $50 fee. I only will if I have to, as I'm quite fed up with them and I'm moving all my banking elsewhere.
 

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From the CRA www.cra-arc.gc.ca/E/pub/tg/rc4466/rc4466-08e.pdf :

TFSA contribution room
The TFSA contribution room is made up of:
■ your annual TFSA dollar limit ($5,000 per year plus indexation, if applicable);
■ any unused TFSA contribution room* in the previous year; and
■ any withdrawals made from the TFSA in the previous year, excluding qualifying transfers*.
Based on information provided by the issuers, the Canada Revenue Agency (CRA) will determine
the TFSA contribution room for each eligible individual. Your annual contribution room will be
indicated on your notice of assessment.


So the issuers report to the CRA your contributions, your withdrawals and your transfers. The CRA does the math.

It seems clear that to transfer TSFA funds it is best to withdraw the money and re-deposit it, if there's a transfer fee but no withdrawal fee. That is what I will do.
 
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