If your TFSA contributions exceed your available room, the CRA charges a tax of 1% per month on the highest excess amount in each month, for as long as the excess stays in your account. It's not a one-time fine: the cost keeps building until you remove the excess or new room absorbs it.
What to know
- Tax: 1% of the highest excess amount in each month the excess exists
- Stop it: withdraw the excess as soon as you notice
- Report it: file Form RC243, the TFSA Return, by June 30 of the following year
- Waivers: possible if the excess was a reasonable error and you removed it promptly
How people over-contribute
- Re-depositing a withdrawal in the same year. The most common cause. Withdrawals don't become room until January 1. See our withdrawal rules guide.
- Switching banks the wrong way. Cashing out at one institution and depositing at another counts as a new contribution.
- Multiple TFSAs. Room is shared across all your accounts, not per account.
- Trusting an out-of-date CRA figure. My Account only reflects what institutions have reported, which can lag by weeks or months.
- Contributing next year's room early. New room arrives on January 1, not before.
How the 1% is calculated
The tax applies to the highest excess in each calendar month, even if it was only there for a day. Example:
| Month | Highest excess | 1% tax |
|---|---|---|
| April | $5,000 | $50 |
| May | $5,000 | $50 |
| June | $5,000 | $50 |
| July (removed July 3) | $5,000 | $50 |
| August onward | $0 | $0 |
| Total | $200 | |
Left alone until January 1, the same $5,000 excess would have cost $450 (nine months at $50).
Withdrawing the excess stops the tax, but doesn't restore room the same year. The withdrawal is still added back to your room next January, like any other withdrawal.
How to fix it
- Work out the excess. Add up your contributions this year across all TFSAs and compare them to your room on January 1 (from My Account, adjusted for anything recent).
- Withdraw the excess right away. If it's invested, you can withdraw cash or transfer out securities.
- Wait for the CRA's letter. If you had an excess, the CRA will usually send a TFSA Return, Form RC243, for you to file.
- File RC243 by June 30 of the following year and pay the tax owed.
Asking the CRA to waive or cancel the tax
The CRA can waive or cancel the tax if the excess resulted from a reasonable error and you removed it without delay. Write to the CRA explaining what happened, when you noticed, and when you withdrew it, with supporting documents such as statements and transfer forms. Acting quickly is the strongest part of any request.
Deliberate over-contributions
Intentionally over-contributing to earn tax-free returns doesn't work. Income earned on deliberate excess contributions can be taxed at 100%, on top of the 1% monthly tax.
Frequently asked questions
What is the penalty for over-contributing to a TFSA?
A tax of 1% per month on the highest excess amount in each month, until the excess is removed or absorbed by new room.
Does the excess disappear on January 1?
New annual room absorbs it from January 1, so the monthly tax stops then. You still owe the tax for the months it existed.
Do I need to file anything?
Yes. If you had an excess, you need to file Form RC243, the TFSA Return, by June 30 of the following year.
Can the CRA forgive a TFSA over-contribution?
It can waive or cancel the tax if the excess was due to a reasonable error and you removed it promptly. You have to ask in writing.
Sources
- Canada Revenue Agency, Tax payable on excess TFSA amount
- Canada Revenue Agency, RC243 Tax-Free Savings Account (TFSA) Return