TFSA Over-Contribution Penalty

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by Enoch Omololu


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The Tax-Free Savings Account (TFSA) is a great tool for saving and investing tax-free. As the name implies, any capital gains, dividends, or interest generated on your TFSA investments are tax-free for life.

If you have been eligible but never contributed to a TFSA since its inception, your total contribution room for 2020 is $69,500!

Similar to the Registered Retirement Savings Plan (RRSP), the TFSA is a registered account and it is important to follow the rules put in place by the federal government.

It is relatively easy to over-contribute to your TFSA. One popular reason is if you forget or do not understand how withdrawals affect your contribution room for the year in which you make the withdrawal. While you can re-contribute any amount withdrawn from your TFSA, your contribution room doesn’t increase until the next calendar year.

TFSA Over-Contribution Example

Assume John has a total of $30,000 in his TFSA at the end of January 2019, after contributing his limit of $6,000 for the year. In March 2019, he decides to withdraw $5,000 to deal with an emergency.

Based on the withdrawal rules, if he has no unused contribution room left, he will have to wait until the 2020 calendar year before he can re-contribute the amount withdrawn in 2019.

In this case, his contribution limit in 2020 will then equal $5,000 plus the TFSA limit indexed for 2020 (i.e. $6,000). If John forgets the rules and in September 2019, he re-contributes the $5,000 withdrawn (even though he has no spare contribution room), he would be deemed to have $5,000 in excess contributions and will have to pay taxes on the amount.

Related: Understanding How The TFSA Works

TFSA Over-Contribution Penalty

Canada Revenue Agency (CRA) will charge a 1% penalty per month on excess TFSA contributions. The penalty levied is based on the maximum chargeable on a full-month basis.

This means that even if the excess amount was in your account for only 3 days, you will be charged the full monthly 1% penalty on the total excess amount for that month.

In addition, the CRA can also charge a penalty of 100% on any income earned from the excess contributions. Unlike the RRSP, there is no penalty-free $2,000 “buffer” amount against errors.

tfsa overcontribution penalty

How To Resolve a TFSA Over-Contribution

  1. As soon as you realize you have over-contributed, withdraw the excess amount ASAP! This will limit the potential taxes you have to pay to CRA.
  2. Contact the Canada Revenue Agency in writing asking for a waiver on the taxes owed. You will need to show them that your over-contribution was due to a reasonable error and that you have taken steps to remove the excess amount.
  3. Complete and return the TFSA Over-contribution Forms (TFSA Return & Schedule A) to CRA. Pay the applicable taxes on or before June 30th of the year following when you made the excess contributions. If CRA approves your tax waiver request, you may get some or all of the taxes you paid back.
  4. If you come across any problems or become confused about what to do, contact CRA at 1-800-959-8281.

Related: Comparing the TFSA vs. RRSP

Other TFSA Penalties

While much less common than excess contributions, other issues that can lead to an individual incurring penalties on their TFSA account include:

  • TFSA containing non-qualified investments
  • TFSA containing a prohibited investment
  • Contributing to a TFSA while you are deemed a non-resident of Canada.


While you can check your CRA My Account or call them to request a TFSA Transaction Summary, what you get may not include recent transactions you have made.

For example, what is available on the CRA MY Account service does not usually reflect transactions you made in the current year.

Your best bet to staying within the CRA’s TFSA limits and avoid over-contributing is to track all your contributions and withdrawals yourself.

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, Credit Canada, MSN Money, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

8 thoughts on “TFSA Over-Contribution Penalty”

  1. can contribution to TFSA in a year affect the quantum of the OASP to be received next year…
    could you please offer your opinion on this point?

    • @Dipak: No, TFSA funds and returns are non-taxable and do not count as taxable income. Your TFSA contributions will not impact your OAS pension.

      • Thank you Mr Omololu for the clarification.

        I had an apprehension that the contribution one makes even to TFSA might be construed by the GIS working team as being sourced from a new or additional income, which might be exigible to tax,and proceed their calculations.

        your valued opinion now puts my apprehensions to rest;thank you again

  2. My husband has some room in his Tfsa & we split income so does it make any difference if we wait till next year to add to his Tfsa?

  3. I have invested 20000$ in TFSA account in 2012 on the advise of my bank before I was leaving Canada to join my husband in Dubai. I was totally unaware of TFSA limits neither the bank advised me on this.
    I returned to Canada in 2020 and after filing my return for the year, I received notices from CRA on TFSA over contributions for last 8-9 years. Although I earned only 2700$ on my TFSA investment over last 8-9 years but I was being penalized by CRA to pay 50000$.
    Please advise how best to tackle this as I was totally unaware of the law when I invested the amount and besides I didn’t earned that much money to pay this huge penalty.

    • @Hina: Sorry to hear about this. I must say that the process for dealing with this is really painful and it may be best for you to contact an accountant who can help you with the logistics. All the best.

  4. I just started day trading can I open a TFSA and trade stocks with the TFSA account, or do I just put the money I make into the TFSA? I’m not sure how this works. Example: I opened a trading platform transfered 1700 from my bank account to it. Made two trades and was up 305.00 do I transfer the 305 to my TFSA or do I transfer all of my funds and do my trading from the TFSA account. Thanks very much for reading and replying.

    • @Dwight: For this to work, you should be trading inside a TFSA investment account i.e. you should set up the account as a TFSA account right off the bat.

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