What Is a TFSA Over-Contribution?
A TFSA over-contribution occurs when you deposit more money into your Tax-Free Savings Account than your available contribution room allows. Unlike RRSP over-contributions (which allow a $2,000 lifetime grace amount), TFSA over-contributions are penalized from the first dollar of excess — at a rate of 1% per month on the highest excess amount in the month.
TFSA over-contributions are alarmingly common in Canada — the CRA has sent hundreds of thousands of assessment notices for excess TFSA contributions, often to people who genuinely did not realize they had exceeded their room. This guide explains how the penalty works, the most common ways Canadians over-contribute without knowing, and exactly how to fix the problem.
Pathak Professional Corporation in Mississauga has helped many clients resolve TFSA penalties with the CRA. Call 437-872-7399 for immediate guidance.
TFSA Penalty: How It Is Calculated
The TFSA over-contribution penalty under Section 207.02 of the Income Tax Act is:
1% per month on the highest excess TFSA amount in each calendar month where there is an over-contribution
Example:
- You have $5,000 of TFSA over-contribution for the entire months of January, February, and March
- Penalty = $5,000 × 1% × 3 months = $150
- If you also had a $10,000 excess in April (because you added more): penalty for April = $10,000 × 1% = $100
- Total: $250 in penalties
The penalty compounds monthly until the excess is removed. A $20,000 over-contribution left uncorrected for 12 months costs $2,400 in penalties — plus interest on the unpaid penalty.
2025 TFSA Contribution Room: What You Are Allowed
| Year | Annual TFSA Limit | Cumulative Room (if eligible since 2009) |
|---|---|---|
| 2009–2012 | $5,000/year | $20,000 |
| 2013–2014 | $5,500/year | $31,000 |
| 2015 | $10,000 | $41,000 |
| 2016–2018 | $5,500/year | $57,500 |
| 2019–2022 | $6,000/year | $81,500 |
| 2023 | $6,500 | $88,000 |
| 2024 | $7,000 | $95,000 |
| 2025 | $7,000 | $102,000 |
Your personal room may differ because:
- TFSA room only accumulates from the year you turned 18 AND were a Canadian resident
- Withdrawals from prior years add back to your room — but only on January 1 of the FOLLOWING year
- Newcomers to Canada only earn room from the year they became a resident
The 5 Most Common Causes of TFSA Over-Contributions
-
Withdrawing and re-contributing in the same calendar year
This is the single most common mistake. When you withdraw from your TFSA, that withdrawal amount is added back to your contribution room — but NOT until January 1 of the NEXT year. If you withdraw $20,000 in March and re-contribute $20,000 in June of the same year, you have over-contributed by $20,000 for the months of June through December. -
Transferring between TFSAs incorrectly
If you close your TFSA at Bank A and withdraw the funds yourself (instead of doing a direct transfer), then deposit the same money into a new TFSA at Bank B in the same year, you have used up contribution room TWICE for the same money. The correct method is a direct TFSA transfer (not a withdrawal + re-contribution). -
Misunderstanding your available room
Many Canadians check their “available room” on My Account but do not realize it only reflects data the CRA has received — typically your contributions and withdrawals from the prior year. If you’ve contributed in the current year, your actual available room is less than what My Account shows. -
Forgetting room from previous years
Some Canadians believe they have more room than they do because they lost track of contributions across multiple institutions or multiple accounts. If you have TFSAs at multiple banks, ALL contributions count toward the same single lifetime limit. -
Non-residents contributing to a TFSA
If you are a non-resident of Canada (even temporarily, such as working abroad on a foreign work permit), you do NOT earn TFSA room for the years you are non-resident. Any contributions made as a non-resident are penalized at 1% per month.
How to Fix a TFSA Over-Contribution
Step 1: Remove the Excess Immediately
The fastest way to stop the penalty from growing is to withdraw the excess amount from your TFSA immediately. Removing the excess does NOT eliminate penalties already accrued — but it stops new monthly penalties from accumulating.
Step 2: File Form RC243 (TFSA Return)
If the CRA has not yet contacted you, you must file Form RC243 — the TFSA Return — to self-report the over-contribution and the months it existed. The return is due June 30 of the year following the over-contribution year. Calculate your penalty using the RC243 schedule and pay it with the return.
Step 3: Apply for Penalty Waiver (If Eligible)
If you over-contributed due to a genuine misunderstanding (especially the same-year withdrawal/re-contribution mistake), the CRA will sometimes waive the penalty. Apply using Form RC4288 (Request for Taxpayer Relief) and clearly explain:
- How the over-contribution occurred
- That you removed the excess as soon as you became aware
- That it was a genuine mistake rather than deliberate excess contribution
The CRA has waived TFSA penalties in many cases involving the same-year re-contribution error — but only when the taxpayer removed the excess promptly and demonstrated genuine confusion about the rules. Having a CPA help draft the relief request significantly improves the outcome.
TFSA Over-Contribution CRA Notice: What to Do
If you receive a CRA assessment for TFSA excess contributions (a “Notice of Assessment for TFSA Excess Contributions”), you have 90 days from the date of the notice to:
- Pay the assessed penalty and interest, OR
- File a Notice of Objection if you disagree with the assessment, OR
- Apply for penalty relief under Section 207.06 and request the CRA cancel or waive the penalty
Do NOT ignore a TFSA over-contribution assessment — penalties that go unpaid become tax debts subject to the full collection powers of the CRA (garnishments, liens, bank account freezes).
Frequently Asked Questions: TFSA Over-Contribution Canada
What is the penalty for TFSA over-contribution in Canada?
The TFSA over-contribution penalty is 1% per month on the highest amount of excess TFSA contributions in each month where the over-contribution exists. This penalty applies from the very first dollar over your limit — there is no grace amount (unlike the $2,000 lifetime over-contribution room for RRSPs). The penalty compounds monthly until the excess is withdrawn. For example, a $15,000 over-contribution that persists for 6 months results in a penalty of $900, plus interest on unpaid penalties. Acting quickly to remove the excess is essential to minimizing the damage.
Can I re-contribute withdrawn TFSA money in the same year?
No — this is the most critical TFSA rule to understand. When you withdraw money from your TFSA, that amount is added back to your contribution room on January 1 of the following calendar year, NOT immediately. If you withdraw $10,000 in June and re-contribute $10,000 in September of the same year, you have over-contributed by $10,000 for 4 months (September through December). The only exception: a “direct transfer” between two TFSA accounts at different institutions does NOT count as a withdrawal and re-contribution — use the official direct transfer process rather than withdrawing and re-depositing.
Will the CRA waive my TFSA penalty?
The CRA has the discretion to waive TFSA excess contribution penalties under Section 207.06 if the excess arose because of a “reasonable error” and if the taxpayer took “all reasonable steps under the circumstances to eliminate the excess.” In practice, the CRA is most likely to grant relief when: the error was the common same-year withdrawal/re-contribution mistake; the taxpayer removed the excess promptly upon discovering the error; and the application clearly explains what happened. Having a CPA prepare your relief application (RC4288) improves your chances significantly. The CRA does NOT routinely waive penalties for deliberate or repeat over-contributions.
How do I check my TFSA contribution room?
You can check your available TFSA contribution room through CRA My Account at canada.ca/my-cra-account under “TFSA contribution room.” Important caveat: the room shown in My Account is based on information reported to the CRA by your financial institutions, which can lag by months. Your current-year contributions are often NOT reflected in real-time. Always calculate your available room yourself: start with your cumulative room based on your year of eligibility, add back prior-year withdrawals, and subtract all contributions made to date at all institutions. If you are unsure, contact a CPA before making a large TFSA contribution.
