What Counts as a TFSA Excess Contribution?
Your TFSA contribution room = (all annual limits you’ve accrued) − (all contributions you’ve made) + (prior-year withdrawals added back on Jan 1). If your deposits at any time exceed that room—by even $1—you’ve over-contributed. The CRA then applies a 1% per-month tax on the month’s highest excess balance until you remove it or the next year’s room absorbs it.
2025 Limits You Need to Know
- Annual limit (2025): $7,000.
- Cumulative total (2009–2025): $102,000 (for someone 18+ and resident each year, with no prior contributions).
Tip: You can open a TFSA only once you reach your province’s age of majority (18 or 19). But room starts accruing from age 18 if you’re a Canadian resident with a valid SIN—even if your bank won’t let you open the account until 19 in some provinces.
Key Takeaways
- A TFSA excess contribution happens the moment your deposits exceed your available room; the CRA charges 1% per month on the highest excess amount for each month it exists. Canada.ca
- Withdrawals don’t create a new room until January 1 of the next year. Re-depositing too soon is the #1 cause of penalties. Canada.ca
- The 2025 annual TFSA limit is $7,000; the cumulative total since 2009 is $102,000 for someone eligible every year and never contributed.
- File Form RC243 (TFSA Return) and pay by June 30 of the year after the tax applies if you owed excess tax. Canada.ca
- Direct transfers between TFSA institutions don’t use contribution room—avoid withdrawing to move money. Canada.ca
- If you contributed while non-resident, a separate 1%/month tax applies; fix and file promptly. Canada.ca
How the 1% Penalty Is Calculated (Step-by-Step)
The CRA charges 1% of the month’s highest excess for each month the excess exists. Even if you fix it mid-month, that month still counts.
Example:
- On May 3, you exceed room by $2,000.
- You withdraw $1,200 on July 20.
- May & June highest excess: $2,000 → $20 each month.
- July highest excess is still $2,000 (because you were over by $2,000 earlier that month) → $20.
- Aug+ (excess now $800): $8 per month until removed or absorbed.
Total to July: $60. Keep going $8/month until fixed, or until Jan 1 new room absorbs the remainder.
The Most Common Ways Canadians Over-Contribute
- Re-depositing withdrawals in the same calendar year (without other room). Room returns next January.
- Moving TFSA money by withdrawing and re-depositing—instead of a direct transfer between institutions. Direct transfers don’t use room.
- Multiple TFSAs across banks (losing track of totals). CRA My Account lags—keep your own log.
- Contributing while non-resident (after a move abroad). Separate 1%/month tax applies.
How to Fix an Excess (Fast and Correct)
1) Remove the Excess Amount Immediately
Withdraw the exact excess from your TFSA as soon as you discover it. This stops future months’ penalties. Don’t wait for CRA to contact you.
2) File the TFSA Return (RC243) by June 30
If you owe excess tax, file RC243 (and schedules) and pay by June 30 of the next year. Late payment adds interest. A Toronto CPA or personal tax accountant Toronto / Scarborough can help you complete RC243 and calculate the exact tax.
3) Let Future Room Absorb Remaining Excess (If Any)
If you can’t withdraw (e.g., locked-in investments), the excess continues to incur 1% monthly until Jan 1 when the new room arrives—or until you remove it.
4) Consider a Taxpayer Relief Request (If It Was an Honest Mistake)
If it truly was inadvertent and you acted quickly, you can ask CRA to cancel or waive some/all of the penalty (Taxpayer Relief). A CPA Scarborough / Toronto can craft the relief letter with supporting evidence.
Crystal-Clear Examples (2025)
Lisa’s “Re-deposit” Mistake
- Maxed through 2025.
- Withdraws $5,000 in March 2025; re-deposits $5,000 in September 2025 (no spare room).
- Excess: $5,000 (Sept–Dec).
- Penalty: 4 months × 1% × $5,000 = $200.
- Fix: Withdraw $5,000 in September; file RC243 by June 30, 2026.
Jane’s Over-Contribution with Partial Fix
- Over by $2,200 in June.
- Withdraws $800 in October.
- Penalty: June–Oct at 1% of $2,200; Nov–Dec at 1% of $1,400.
Amira Becomes Non-Resident, Then Contributes
- Moves to the U.S. July 2025; contributes $3,000 in November (still non-resident).
- Non-resident TFSA tax: 1%/month while non-resident → $60 for Nov–Dec, plus normal excess computations if also over room. File RC243 by June 30, 2026.
John Over-Contributes, Then Fixes in August
- Contributes $8,000 in Jan 2025 (limit $7,000).
- Withdraws the $1,000 excess in August 2025.
- Penalty: Jan–Aug = 8 months × 1% × $1,000 = $80.
- Pays with RC243 by June 30, 2026; optionally requests relief if first-time mistake.
Pro Tips to Avoid Ever Paying This Penalty Again
- Use direct transfers when switching banks (never withdraw to move money).
- Wait until next January to re-deposit withdrawals—unless you definitely have unused room.
- Track your own totals (simple spreadsheet beats CRA’s lag).
- Confirm your residency before contributing (moving abroad changes the rules).
- Ask your Scarborough CPA before large or late-year deposits.
FAQs – Personal Tax Toronto / Scarborough / Markham
1. Can I “designate” a withdrawal to specifically remove the excess?
Yes. Practically, when you withdraw at least the amount of your excess, you’ve removed it. Keep records (dates/amounts) showing the excess was eliminated that month so later months don’t accrue more 1% tax.
2. My bank made an error—will CRA still assess me?
Generally yes; the holder is responsible for the room. You can ask the institution to correct their reporting and submit a Taxpayer Relief request if you can prove the error and your quick corrective action.
3. I’m 19 in my province—did I miss room from age 18?
No. Room accrues from age 18 if you’re a Canadian resident with a valid SIN, even if your bank wouldn’t let you open until 19. You can contribute later using that accrued room.
4. Does the 1% penalty compound if I don’t pay it?
The excess tax itself is calculated monthly (not compounded like interest in the account). But if you don’t pay by June 30, the CRA charges interest on the unpaid tax from that due date until you pay.
5. Will a direct TFSA transfer affect my room or trigger penalties?
No—direct transfers between TFSA issuers do not use room and avoid over-contribution issues tied to moving money yourself. Ask the receiving institution to initiate the transfer.
Consult a Personal Tax Accountant Toronto / Ajax / Scarborough to Deal with TFSA Excess Contribution
TFSA over-contributions are common—and fixable. The moment you realize you’re over: withdraw the excess, file RC243 by June 30, and consider relief if it was an honest mistake. Going forward, use direct transfers, track your totals, and wait until January to re-contribute withdrawals.
Need help calculating your true TFSA room, completing RC243, or drafting a relief letter?
Book a Consultation with our personal tax accountants Toronto / North York to fix the excess, minimize penalties.
Disclaimer
The information provided in this blog is for general informational purposes only and does not constitute professional accounting, tax, financial, or legal advice. While we strive to ensure the accuracy and timeliness of the content, the information may not apply to your specific situation or reflect the most current legislative changes. Readers are strongly advised to consult a qualified legal or tax professional before making any decisions based on the content of this blog. MAQ CPA and its representatives disclaim any liability for any loss or damage incurred as a result of reliance on any information provided herein.