TFSA Over-Contribution Penalty: How It's Calculated and How to Fix It
- Room is this year's dollar limit, plus unused room from past years, plus withdrawals from last year, minus what you have already contributed this year.
- The CRA's My Account figure lags. CRA says 2025 TFSA records are processed by April 2026. A contribution in January that relies on a stale balance is how people go over.
- A withdrawal does not restore room until January 1 of the next year. Taking the excess out stops future months. It does not erase the months already over, and it does not let you put the money back this year.
- File a TFSA return, Form RC243, with the payment, by June 30 of the year after the tax applies. Deliberate excesses can be taxed at the 100 percent advantage rate.
- A non-resident contribution is a separate 1 percent monthly tax, and it can stack on the excess-amount tax.
How is the 1 percent tax calculated?
CRA's rule is monthly, and it uses the highest excess in the month, not the excess on the last day. Two of CRA's own examples are the whole lesson.
| What you did | Tax |
|---|---|
| Over-contribute $2,000 in June and remove it in September | $20 for each of June, July, August, and September. Total $80. |
| Over-contribute $2,000 in June and remove it later in June | $20. The month of the contribution still counts. |
| Over-contribute $6,000 in August and withdraw $4,000 in mid-September | $60 for August and $60 for September. Total $120. September is taxed on the highest excess that month, which was $6,000 before the withdrawal. |
Table as of September 2026. Source: CRA, "If you owe tax on excess TFSA amounts." The dollar limit for 2026 is $7,000, added on January 1. The schedule of limits is the 2026 contribution limits page. The January funding habit, which is where most excesses start, is TFSA contribution optimization.
On January 2 you read $12,000 of room in My Account. That figure does not yet include a $7,000 contribution you made in December, because the institution has not reported it and CRA has not posted it. You contribute $12,000. Your real room was $5,000. The excess is $7,000. Left in place from January through December, the tax is 1 percent × $7,000 × 12 = $840. Withdraw $7,000 in January and the tax is $70 for January only, but you cannot recontribute that $7,000 until next January 1. The $12,000 and the dates are an illustration of the lag CRA warns about. Your room is your own ledger.
What should you do the day you notice?
- Rebuild room from your own records. Dollar limit for each year you were 18 or older and a resident, plus unused room, plus last year's withdrawals, minus this year's contributions. Qualifying transfers do not consume room. A withdrawal you made this year does not come back until next January.
- Withdraw the excess as soon as you know the number. Waiting for CRA's letter adds months at 1 percent. CRA says it typically notifies you in late spring, through My Account or by mail. That is not a deadline you should wait for.
- Do not put it back the same year. The withdrawal creates room next January, not today. Putting it back is a second excess.
- File Form RC243 and pay by June 30 of the following year. Tax for 2026 is due with that return by June 30, 2027. The schedule of excess amounts is the related schedule CRA specifies with the return.
- Ask for a waiver only if the mistake was reasonable. CRA can cancel or waive the tax when the excess came from a reasonable error. A waiver is a request, not a right, and it is not a reason to leave the money in.
CRA states that excess amounts that result from a deliberate over-contribution may be taxed at the 100 percent advantage rate. The 1 percent monthly tax is the accidental version. Do not park money over the limit because the 1 percent "is only 12 percent a year." That reading is wrong if CRA treats the contribution as deliberate, and it is a bad trade even when it is not.
Which mistakes are not an over-contribution?
- A direct transfer between TFSA issuers. That is not a withdrawal and a new contribution. Withdrawing and redepositing yourself, in the same year, is.
- Investment losses inside the account. Room is about contributions, not about the market value. A TFSA that falls from $50,000 to $30,000 does not create $20,000 of room, and it does not reduce an excess you already created.
- A withdrawal of qualifying amounts that CRA lists as not affecting room, including certain exempt contributions. Read the current CRA page before you treat a death benefit or a transfer as ordinary room.
If you are a non-resident and you contribute, other than a qualifying transfer or an exempt contribution, CRA charges 1 percent for each month that contribution stays in. That tax can apply on top of the excess-amount tax if you were also over the limit. Residency is a facts test. Leaving the country is the longer problem in life events and tax, not a TFSA loophole.
Frequently asked questions
Is the penalty 1 percent a year or 1 percent a month?
One percent per month, on the highest excess TFSA amount for that month. Twelve months on an untouched excess is 12 percent of the excess, not 1 percent. CRA's June-to-September example of a $2,000 excess is $80, which is four months, not a single annual charge.
If I remove the extra money the same week, do I owe anything?
Yes, for that month. CRA's example of a $2,000 excess contributed and removed in June is still $20. Removing it stops July. It does not rewind June.
Can I trust the room shown in My Account?
Not for a contribution you are about to make in the first quarter. CRA says 2025 records are processed by April 2026, and that contributions reduce room immediately even though My Account does not update immediately. Keep your own total. The issuer's statements are the source. My Account is a reconciliation.
Does a withdrawal this year let me contribute again this year?
No. The amount you withdraw is added to room on January 1 of the next year, along with the new dollar limit. Recontributing the withdrawal in the same year is a classic way to create a second excess, especially after you "fixed" the first one.
What if I contributed and I am not a resident?
A contribution while you are a non-resident, other than a qualifying transfer or an exempt contribution, is taxed at 1 percent for each month it remains. If you were also over your room, CRA can charge both 1 percent taxes. Remove the contribution and read both rules. They are not the same form line, and they can both apply.
Will CRA always charge the tax?
CRA assesses it, and you can ask for a waiver when the excess was a reasonable error and you remove it. The request is not automatic. File the return by June 30 of the next year either way, so interest and a late-filing penalty are not sitting on top of a tax you hoped would be forgiven.
Sources
- CRA: tax on excess TFSA amounts
- CRA: calculate your TFSA contribution room, including the 2026 dollar limit of $7,000
- CRA: before you contribute, and the 1 percent non-resident contribution tax
- CRA: Form RC243, TFSA return
The 1 percent is the expensive way to learn the room formula.
Limits, withdrawals, and the accounts around the TFSA are the rest of the return. The 2026 tax guide covers that filing side, $49 CAD.
Get the 2026 Tax Guide — $49 CAD
