TFSA Over-Contributions: How the Penalty Works and How to Fix It

How to check your room, the monthly penalty on an over-contribution, and how to fix it

Scott Tang, CPAUpdated 2026-11-052026 rules5 min read

The TFSA is the account where it's easiest to over-contribute by accident: you think money you've withdrawn can go straight back in, you open several TFSAs and put a little in each, or as a newcomer you think you can catch up on room for earlier years… The excess is penalized at 1% a month until you take it out. If you take it out promptly once you find it, you can ask the CRA for relief; the CRA decides at its discretion, looking at things such as whether it was a reasonable error and whether you acted promptly, and approval isn't guaranteed.

1% a month

Each month's penalty is 1% of the highest excess amount in that month

January 1

Room from a withdrawal only comes back on January 1 of the next year

RC243

You have to file a TFSA return for the year you over-contributed

June 30

The RC243 and the penalty are generally due by June 30 of the following year

The four most common over-contributions

Taking money out and putting it back
You withdraw $10,000 this year and put $10,000 back in the same year — room from a withdrawal only comes back on January 1 of next year, so if you have no other unused room, putting it back this year is an over-contribution.
A little in each of several TFSAs
You open a TFSA at several banks and brokerages; your room is counted across all of them combined, so filling each one up puts you over.
Newcomers catching up on room
Room only starts building from the year you become a Canadian resident, and you don't get room for earlier years; putting in $109,000 will put you over.
Contributing while a non-resident
After you leave Canada and become a non-resident, you can keep your TFSA but can't contribute to it any more; contributions made anyway are subject to a separate tax of 1% a month, which can come on top of the 1% for the excess.

How the penalty is calculated

1
Highest monthly excess
The highest amount you were over your room at any time in the month
2
× 1%
That is the penalty for the month
3
Until it's removed
Or until new room covers it
4
File the RC243
File the return and pay the penalty by June 30 of the following year

Example: In March 2026 you over-contributed $5,000 and never took it out. That's 10 months to the end of December, so the penalty = $5,000 × 1% × 10 = $500. The new annual room on January 1, 2027 (as long as it is at least $5,000) absorbs the excess, and there is no penalty from that month on.

You've over-contributed: how to fix it

Item	Take it out right awayRecommended	Wait for the new year's room
What you do	Withdraw the excess	Leave it, and wait for the new room on January 1 next year
Penalty	Stops from the next month	Continues to the end of the year
Next year's room	The amount withdrawn is added back next year, but it only fills the negative room left by this year's excess, so next year you can contribute just the new annual limit	The excess still in the account is deducted from the new year's limit first
Can you ask for relief?	Yes: explain that it was a reasonable error and that you took it out promptly (approval isn't guaranteed)	Harder

Asking for relief: You can ask through My Account or by writing to the CRA. Explain why the over-contribution happened (for example, you thought your room had already come back), and when and how much you withdrew as soon as you found it. The CRA decides depending on the circumstances whether to waive or cancel part or all of the penalty.

Points to watch

Work out your room yourself
My Account isn't updated in real time, and deposits and withdrawals from this year, or even last year, may not show yet; calculate your room yourself from complete records at every institution, then check it against the CRA's figure.
Deliberate over-contributions cost more
If you over-contribute on purpose and use the excess to earn income, that income may be taxed at 100%.
Move money between accounts by direct transfer
When you switch institutions, use a direct transfer; don't withdraw the money and deposit it again, or it may be treated as a new contribution.

How Sheng Qian CPA can help

Working out your room first
From your deposit and withdrawal records and the year you became a resident, we work out the room you actually have each year.
Dealing with an excess quickly
We help you work out how much to withdraw, and prepare the RC243 and the relief request.
Avoiding it in future
We plan deposits and withdrawals across all your accounts, and for both spouses, together; for prices, see "What Sheng Qian CPA Can Do for Investors: Tax Returns, Accounts and Annual Planning" in this series.

Sources

Disclaimer

This article is general information only and is not tax advice. Everyone's situation is different; please consult a CPA about your specific arrangements. Service fees are as set out in our written quote.