TFSA Over-Contribution Penalty: What Happens and How to Fix It

You got a letter from the CRA. Or you're doing the math and something doesn't add up. Either way, you've over-contributed to your TFSA and now you're wondering how bad it is.

Here's the short answer: it's fixable, but the longer you wait the more it costs you.

What the Penalty Actually Is

The CRA charges a 1% tax per month on the highest excess amount in your TFSA during that month.

So if you're $5,000 over your limit, you owe $50 per month until the excess is gone. That's $600 a year on a $5,000 mistake. Not catastrophic, but not nothing. And it compounds every month you don't fix it.

The CRA does not warn you proactively. They find out when your financial institution files your TFSA transaction records, which happens after the end of the calendar year. By the time you get a letter, you may already owe several months of penalties.

How Over-Contributions Happen

Most people don't over-contribute on purpose. The most common reasons:

Re-contributing in the same calendar year. This is the big one. If you withdraw from your TFSA in 2026, that room does not come back until January 1, 2027. If you put the money back in the same year, you've over-contributed.

Moving money between institutions. A direct transfer between TFSA accounts at different banks is not a contribution. But if you withdraw from one bank and deposit at another, it counts as a new contribution, even if you intended it as a transfer.

Not knowing your room. If you've never checked your actual room on CRA My Account and you've been contributing based on a rough estimate, there's a chance you've been over for a while.

CRA data lag. There was a documented glitch in 2025 where some CRA accounts were showing incorrect room. People contributed based on what CRA showed, only to find out later the number was wrong.

Step One: Withdraw the Excess Immediately

Do not wait. The penalty clock is running every month the excess stays in your account.

Log in to your TFSA and withdraw the amount you're over. If you're not sure exactly how much you're over, check CRA My Account for your current room, add up all contributions you've made this calendar year, and calculate the difference.

Once the money is out, the penalty stops accumulating from that point forward. You still owe whatever has already accumulated, but at least it stops growing.

Step Two: Figure Out What You Owe

The penalty is 1% per month on the highest excess amount in each month. So if you were $3,000 over for 4 months, you owe $120.

The CRA will send you a proposed TFSA return (Form RC243) if they catch it. This form calculates the tax owing. If you catch it yourself before they do, you can file RC243 proactively, which looks better and can help if you apply for a waiver.

Step Three: Request a Waiver If It Was an Honest Mistake

The CRA has the authority to waive the penalty if the over-contribution happened due to a reasonable error and you took steps to fix it quickly.

To request a waiver: withdraw the excess immediately, file Form RC243 with Schedule A, write a short letter explaining what happened and that you have corrected it, then submit through CRA My Account or by mail.

The CRA grants these fairly often for first-time mistakes. The key is to act fast, explain clearly, and show you've fixed it. Don't wait for them to come to you.

The Mistake Most People Make

Thinking their withdrawal room comes back right away.

It doesn't. If you have $10,000 of TFSA room, contribute $10,000, then withdraw $5,000 to cover an emergency, your room for the rest of that calendar year is zero. The $5,000 doesn't come back until January 1.

This trips up a lot of people who are actively using their TFSA as both a savings account and an investment account. Every withdrawal and re-contribution in the same year is a potential over-contribution waiting to happen.

How to Make Sure It Never Happens Again

Check your room on CRA My Account before every contribution. It takes 30 seconds and it's the only number that matters. Your bank's records, your own spreadsheet, your memory of what you contributed — none of those are as reliable as the CRA's official number.

If you want to move money between TFSA accounts at different institutions, use a direct transfer, not a withdrawal and re-deposit. Call your new institution and ask them to initiate the transfer on their end. It keeps the transaction off your contribution record entirely.

Use our TFSA Calculator to track your room and see your running contribution history. And if you're not sure whether to prioritize your TFSA or RRSP this year, read RRSP or TFSA: Which Do You Fill First?.

Quick Summary

Over-contributing to your TFSA triggers a 1% per month penalty on the excess. Fix it by withdrawing the excess immediately. File Form RC243, and if it was an honest mistake, write a waiver letter. The CRA grants these regularly. The most common cause is re-contributing in the same calendar year after a withdrawal. Check your room on CRA My Account before every contribution.