TFSA over-contribution: how the 1% penalty works and how to fix it
A An account where investment growth and withdrawals are completely tax-free. → Glossary (Tax-Free Savings Account) forgives a lot: withdraw any time, skip years, and unused room waits for you. But it has one strict rule. Put in more than your contribution room and the Canada's tax authority — collects taxes, pays benefits, tracks account contribution room. → Glossary (Canada Revenue Agency) charges a tax of 1% a month on the extra for as long as it stays in the account.
An over-contribution is rarely greed. It usually comes from a number that looked right: the “$109,000 since 2009” figure from an article, a withdrawal put back too early, or a room figure in CRA My Account that was months out of date. This article covers how room is counted, where people go over, how the tax is calculated, and what the CRA says to do once it has happened.
How contribution room is counted
Room is a personal ceiling. Every January 1 it grows by that year’s limit ($7,000 for 2026). The Canada's tax authority — collects taxes, pays benefits, tracks account contribution room. → Glossary’s formula for the current year:
- this year’s limit,
- plus unused room from earlier years,
- plus everything you withdrew last year,
- minus what you have contributed this year.
Investment gains and losses don’t change it. A An account where investment growth and withdrawals are completely tax-free. → Glossary that grew from $20,000 to $26,000 has not used up $6,000 more room.
For newcomers: room starts the year you became a resident
Room only builds for years you were a Canadian tax resident aged 18 or older. The CRA decides tax residency from your ties to Canada, such as a home here, not from your visa type alone (how that works). For someone who arrived as an adult, room does not go back to 2009.
The CRA’s own example: a person who became a resident in 2024 had the 2024 limit, $7,000, and nothing from earlier years.
| Became a tax resident (aged 18+) in | Room in 2026 if nothing was ever contributed |
|---|---|
| 2019 | $51,500 |
| 2020 | $45,500 |
| 2021 | $39,500 |
| 2022 | $33,500 |
| 2023 | $27,500 |
| 2024 | $21,000 |
| 2025 | $14,000 |
| 2026 | $7,000 |
Sums of the CRA’s yearly limits (2019–2022: $6,000 a year; 2023: $6,500; 2024–2026: $7,000). Anyone who has ever contributed or withdrawn has a different number. Someone who turned 18 after arriving counts from the year they turned 18.
Five ways people go over without meaning to
- Using the “since 2009” figure. $109,000 is the 2026 room for someone who has been an adult resident since 2009. A newcomer who arrived in 2022 has $33,500 at most.
- Putting a withdrawal back in the same year. Money taken out comes back as room only on January 1 of the next year. With a full An account where investment growth and withdrawals are completely tax-free. → Glossary, withdrawing $5,000 in March and returning it in May creates a $5,000 excess.
- Moving a TFSA yourself. Withdrawing from one bank and depositing at another counts as a new contribution. A direct transfer, arranged by the receiving institution, does not touch your room. The Canada's tax authority — collects taxes, pays benefits, tracks account contribution room. → Glossary’s example: a $50,000 do-it-yourself move with no spare room cost $500 a month.
- Several TFSAs, one room. You can hold TFSAs at different banks, but they all share one room. A bank may not know about your TFSAs elsewhere, so the total is yours to track.
- Trusting a figure that’s out of date. The room shown in CRA My Account is updated once a year, in spring, after institutions report. It doesn’t include this year’s contributions (more on this below).
How the penalty is calculated
The tax is 1% per month on the highest excess amount in that month. The month counts in full, even if the excess appears on the 30th.
| Excess sitting in the account | Tax for each month it stays |
|---|---|
| $1,000 | $10 |
| $5,000 | $50 |
| $50,000 | $500 |
Three details from the Canada's tax authority — collects taxes, pays benefits, tracks account contribution room. → Glossary’s worked examples:
- Withdrawing part of it doesn’t lower that month’s tax. The month is charged on its highest excess. The lower amount counts from the next month.
- Withdrawing all of it ends the tax from the next month on. A $2,100 excess created on October 30 and withdrawn on October 31 still costs $21 for October.
- January 1 can absorb it. The new year’s room is applied against any excess still in the account. If the excess is bigger than the new room, the rest keeps being taxed.
How to check your room
Canada's tax authority — collects taxes, pays benefits, tracks account contribution room. → Glossary My Account (the CRA’s online account) shows your room under Savings and pension plans → View An account where investment growth and withdrawals are completely tax-free. → Glossary details → Contribution room. It’s the official figure, with one limit worth knowing:
- Institutions report a year’s TFSA activity to the CRA by the end of February of the following year, and the CRA updates My Account in spring.
- So in, say, October, My Account shows your room as of January 1, before anything you did this year.
The CRA’s own advice is to calculate from your own records rather than rely on the account figure. Its formula is above, and it has a worksheet, Form RC343. A count from your own records follows the formula: the room you had on January 1, minus every contribution made since, across all your TFSAs. This year’s withdrawals stay out of it, because they return only next January. The CRA also asks people with more than one TFSA to check every account’s statements.
If you’ve already gone over
The Canada's tax authority — collects taxes, pays benefits, tracks account contribution room. → Glossary describes the steps like this:
- Withdraw the excess as soon as you notice it. Don’t wait for a letter from the CRA. Your institution reports the withdrawal, so no call to the CRA is needed.
- File a An account where investment growth and withdrawals are completely tax-free. → Glossary Return. That’s Form RC243 with Schedule A (RC243-SCH-A) for the excess. The return and the tax are due by June 30 of the following year. For an excess in 2026, that is June 30, 2027. You have to file even if the CRA hasn’t contacted you.
- If the excess came from a reasonable error, you can ask for a waiver. The CRA asks for a letter explaining why the excess happened and why it would be fair to cancel all or part of the tax. It goes through Submit documents in My Account, or by mail to the TFSA Processing Unit at the address on canada.ca. The CRA says it looks at whether it was a reasonable error, whether the same transactions triggered another tax, and whether the excess was withdrawn without delay. A waiver is the CRA’s decision, not a right.
What the CRA sends
Because the reports arrive in February, the CRA usually writes in late spring of the following year, in My Account or by mail. It’s often an educational letter, and if you’ve already removed the excess, the CRA says nothing more is needed. If a TFSA Return is missing, a TFSA notice of assessment can follow in summer, with the calculation and any penalties and interest added.
The CRA writes about a TFSA excess through My Account or by mail. A phone call or text demanding that you pay a “TFSA penalty” right now by e-transfer, gift card or crypto is a scam pattern, not the CRA (how to spot financial scams).
The fine print
- Deliberate over-contributions can be taxed much more heavily: the Canada's tax authority — collects taxes, pays benefits, tracks account contribution room. → Glossary says they may be taxed at its 100% “advantage” rate. The 1% rule describes the usual, accidental case.
- Contributions made while a non-resident carry a separate 1% monthly tax, and a partial withdrawal doesn’t reduce it. A non-resident who also goes over the room can owe both taxes at once.
- Disagreeing with an assessment: a formal objection (Form T400A or a signed letter) is due within 90 days of the notice of assessment. The CRA recommends asking for a waiver first.
- The excess-removing withdrawal itself. In the CRA’s worked example, the amount withdrawn still counts as a withdrawal and returns as room the next January 1, like any other.
- Turning 18 in a province where contracts start at 19. The An account where investment growth and withdrawals are completely tax-free. → Glossary can be opened at 19, and the room from the year you turned 18 carries over.
FAQ
How much does a TFSA over-contribution cost?
1% of the highest excess in each month it stays in the account: $10 a month for $1,000 over, $50 a month for $5,000 over. It stops the month after the whole excess is withdrawn.
Can I just wait until January 1 for new room to cover it?
New room on January 1 does absorb an excess, but every month until then is taxed at 1%. And the An account where investment growth and withdrawals are completely tax-free. → Glossary Return for the year still has to be filed. The Canada's tax authority — collects taxes, pays benefits, tracks account contribution room. → Glossary’s advice is to withdraw the excess as soon as you notice it.
Why does CRA My Account show more room than I really have?
It’s updated once a year, in spring, from your institutions’ reports, so it doesn’t include what you’ve contributed since January 1. The CRA itself says to calculate from your own records.
I arrived in 2022. Why isn’t my room $109,000?
Because room counts only from the year you became a Canadian tax resident aged 18+. For an adult who became a resident in 2022 and has never contributed, room in 2026 is $33,500: the limits for 2022 to 2026.
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