TFSA Over-Contribution Penalty: The 1%-Per-Month Tax That Sneaks Up on You

By Jordan Ellis · Published August 21, 2026 · Reviewed September 14, 2026

Quick Answer

TFSA over-contributions are taxed at 1% per month on the highest excess amount for each month the excess stays in the account — a $5,000 excess left for 6 months costs $300. The most common cause is re-contributing a withdrawal in the same calendar year: withdrawals only restore room on January 1 of the following year. Check your official room in CRA My Account (not your bank's app), withdraw any excess immediately, and file Form RC243 with a relief letter if the amount or delay was an honest mistake.

The TFSA is Canada’s best account — see why it beats a savings account — with exactly one sharp edge: go a dollar over your room and CRA charges 1% per month until it’s fixed. Here’s how people trip it, and the fastest way back.

The three ways people go over

1. The same-year re-contribution. This is the big one. Withdraw $8,000 in February, redeposit in November, and — unless you had unused room — you’re $8,000 over. Withdrawals only become room again next January 1.

2. The DIY transfer. Moving banks by withdrawing to chequing and redepositing counts as withdrawal + new contribution. A “transfer” of a $40,000 TFSA can create a $40,000 excess. Always have the receiving institution do a direct transfer.

3. Trusting the wrong number. Your bank app shows your balance, not your room. CRA My Account shows room but lags months behind. The only safe ledger is your own: room granted each year, minus contributions ever made, plus withdrawals from prior years.

What the penalty actually costs

1% per month on the highest excess in each month:

Excess	3 months	6 months	12 months
$2,000	$60	$120	$240
$10,000	$300	$600	$1,200
$40,000 (bad transfer)	$1,200	$2,400	$4,800

Deliberate over-contributions (people “investing” the excess for gains) get the advantage tax: 100% of the benefit, plus the 1%/month. CRA knows the difference between an accident and a scheme.

The fix, in order

Withdraw the excess today. Every month you wait is another 1%. Gains on the excess come out too.
File Form RC243 (TFSA Return) by June 30 of the following year, declaring the excess.
Pay the assessed tax, then request relief in writing: explain it was a genuine error, that you corrected it promptly, and attach transaction records. First-time honest mistakes are frequently waived or refunded — but only if you ask, and asking works far better when you self-corrected before CRA’s letter arrived.

Prevention, once and forever

Know your number: someone 18+ since 2009 has $109,000 of total room in 2026 ($7,000/year since 2024). Track contributions in one note on your phone, re-contribute withdrawals only after New Year’s, let banks do transfers directly, and let the TFSA calculator show you why keeping that room intact compounds into real money — our TFSA room guide has the full year-by-year table.

Official sources

Rules and dollar limits change. Confirm current amounts with the official pages below before you act · Last reviewed September 14, 2026.

Tax-Free Savings Account (TFSA) (Canada Revenue Agency)
Calculate your TFSA contribution room (Canada Revenue Agency)

Frequently Asked Questions

What is the TFSA over-contribution penalty?

1% per month on the highest excess amount in the account during each month it remains over. A $10,000 excess costs $100 every month until withdrawn. Deliberate over-contributions can also trigger a 100% advantage tax on any gain attributed to the excess — CRA treats intentional abuse far more harshly than honest mistakes.

I withdrew from my TFSA and put it back. Why am I over?

Withdrawals restore contribution room on January 1 of the following year, not immediately. Withdraw $10,000 in March and re-contribute it in October without other available room and you have created a $10,000 excess — 1% per month from October onward. This single misunderstanding causes most over-contributions.

How do I find my exact TFSA contribution room?

CRA My Account is the only authoritative source — but note it updates slowly, often lagging the current year's transactions until spring. Keep your own running total. For someone 18 or older since 2009 who has never contributed, total room in 2026 is $109,000, including the $7,000 added each year since 2024.

How do I fix a TFSA over-contribution?

Withdraw the excess immediately — the 1% stops accruing the month it comes out. Then file Form RC243 (TFSA Return) by June 30 of the following year, report the excess, pay the tax, and include a letter explaining the mistake and asking for relief. CRA can waive or cancel the tax for honest mistakes, especially when you corrected them quickly, but relief isn't guaranteed.

Do TFSA transfers between banks use up contribution room?

Not if done as a direct transfer (qualifying transfer) arranged by the receiving institution. The trap is withdrawing to your chequing account and redepositing yourself — that is a withdrawal plus a new contribution, and the re-contribution only gets room back next January. Always ask the new bank to pull the transfer.