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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 While you can re-contribute any amount withdrawn from your TFSA, your contribution room doesn’t increase until the next calendar year.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unused contribution room left, he will have to wait until the 2020 calendar year before he can re-contribute the amount withdrawn in 2019.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 If John forgets the rules and in September 2019, he re-contributes the $5,000 withdrawn (even though he has no spare contribution room), he would be deemed to have $5,000 in excess contributions and will have to pay taxes on the amount.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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