FHSA over-contribution penalty in Canada: the 1% a month tax and how to fix it
The FHSA gives you a deduction like an RRSP and tax-free withdrawals like a TFSA, which is exactly why mistakes are easy: people open two accounts, transfer from an RRSP and forget the transfer counts, or contribute a lump sum without checking room. The penalty is small if you catch it fast and grows if you do not. This guide explains what the CRA counts as an excess, how the tax is calculated, three ways to remove an excess, and a calm checklist for fixing it.
On this page
- What counts as an excess FHSA amount
- How the 1% a month tax is calculated
- What a mistake costs (illustrative)
- Three ways to remove the excess
- Deadlines: when to file and pay
- How to avoid an over-contribution
- How people end up with an excess
- If you have just found an excess: a calm checklist
- Using the FHSA with the Home Buyers' Plan
- FAQ
What counts as an excess FHSA amount
The CRA says you have an excess FHSA amount when your contributions plus RRSP-to-FHSA transfers in a year exceed your FHSA participation room for that year. Both count, which is the part many people miss. The CRA's example: first-year participation room is $8,000, so a $7,500 RRSP transfer plus a $2,000 contribution on April 10 creates a $1,500 excess.
Your room works like this. Your first year's room is $8,000. In later years it is up to $8,000 plus carryforward, and the carryforward is capped at $8,000, so room can reach $16,000 in a year. The CRA's formula also includes a $40,000 cap that is reduced by prior contributions and transfers. Investment income and capital gains earned inside the FHSA generally do not use up room. For the full set of limits see our FHSA contribution limit guide and FHSA explained.
How the 1% a month tax is calculated
The CRA says the tax is 1% per month on the highest excess FHSA amount in that month, and it continues each month until the excess is eliminated. The CRA's examples are easy to check:
| Example | Excess | Months | Tax |
|---|---|---|---|
| CRA: Cole, December 2025 | $3,000 | 1 | $30 |
| CRA: Carolyn, November and December 2025 | $2,000 | 2 | $40 |
The tax is reported on Form RC728 (the FHSA return) and Form RC728-SCH-A (Schedule A, Excess FHSA Amounts). The calculation behind the excess has several steps, including prior-year excess, designated amounts, taxable withdrawals and re-participation room, and the CRA page walks through them. If your situation is anything other than a simple overage, use the CRA's worksheet or ask your issuer.
What a mistake costs (illustrative)
Suppose you have $8,000 of room and contribute $10,000 in March, a $2,000 excess. These numbers are our illustration, applying the CRA's 1% rule, not a CRA calculation.
| Choice | Arithmetic | Tax |
|---|---|---|
| Remove the $2,000 in the same month | $2,000 x 1% x 1 month | $20 |
| Leave it until new room on January 1 (March to December, 10 months) | $2,000 x 1% x 10 months | $200 |
The lesson is speed. The tax is a flat 1% of the excess for each month it exists, so removing an excess in the month you spot it is the cheapest outcome.
Three ways to remove the excess
The CRA lists three ways, and they are not equal.
| Method | Included in income? | Effect on RRSP room | Notes |
|---|---|---|---|
| Designated withdrawal | No | None | Available for amounts you contributed |
| Designated transfer to an RRSP or RRIF | No | Does not affect your unused RRSP deduction room | Available for amounts that came in as RRSP transfers |
| Taxable withdrawal | Yes, in the year received | None | The CRA calls it the least favourable option |
The CRA adds restrictions. If your excess came only from contributions, you use a designated withdrawal; if it came only from transfers, a designated transfer; if both, either option within limits. A designated amount cannot exceed the excess at the time you designate it. To make a designation, complete Form RC727 and give it to your FHSA issuer. Your T4FHSA slip shows designated transfers in box 36 and designated withdrawals in box 38.
Deadlines: when to file and pay
The CRA says the FHSA return is due by June 30 of the year following the calendar year in which the tax arose, and any tax payable is due no later than June 30 after the end of that year. If you file late, a penalty and interest charge applies, and the CRA continues to charge interest until you pay the balance owing. So an excess in 2026 would be reported by June 30, 2027.
The FHSA return is separate from your income tax return. Form RC728 is its own return, so do not assume your regular tax return covers it. New room arriving on January 1 ends the tax going forward, as the CRA describes, but the months in which the excess existed are still part of what you report.
How to avoid an over-contribution
- Check your room first. The CRA says to log in to your CRA account, open the Savings and pension plans tab, choose View FHSA details, then open the participation room link or FHSA calculations. Room also appears on your notice of assessment or reassessment and on Form T1028.
- Count transfers. RRSP-to-FHSA transfers use room just like contributions. See RRSP limits if you are moving money across.
- Add up all your FHSAs. Contributions to all of your FHSAs combine against one room figure.
- Mind the calendar year. The CRA measures room by calendar year, not by tax-filing season.
- Automate with a buffer. If you contribute monthly, set the total to stay under room.
The same discipline applies to other accounts; our guide to the TFSA over-contribution penalty compares how those rules work.
How people end up with an excess
- Two accounts, one room. If you hold FHSAs at more than one institution, contributions to all of them count against the same participation room.
- Transfers treated as separate. An RRSP transfer feels like moving money rather than saving it, but the CRA counts it. Spousal RRSP transfers are reported in a separate box (box 34) on the T4FHSA, and they count too.
- A lump sum in the wrong month. Room is measured by calendar year, so a large December contribution can cause an excess even if you were under for most of the year.
- Assuming room rolls over automatically. Carryforward is capped at $8,000 and is $0 in the year you open your first FHSA, so unused room from before you opened does not exist.
- Relying on the issuer's screen. The CRA figure is the one that counts. Compare it with your records before a big contribution.
If you have just found an excess: a calm checklist
- Confirm the numbers: your room from CRA My Account, then your contributions and transfers from your issuer's records or the T4FHSA.
- Work out the excess and which type it is (contribution, transfer, or both), since that decides which removal option you can use.
- Contact your issuer promptly. A designated withdrawal or transfer needs Form RC727, and speed saves money at 1% per month.
- Prefer the designated options over a taxable withdrawal, which the CRA describes as the least favourable.
- Put June 30 of next year in your calendar for the RC728 and any payment, and keep copies.
None of this is hard once you have the numbers, but the penalty clock runs while you wait. If the figures look complicated, a tax professional can check them before you file.
Using the FHSA with the Home Buyers' Plan
An FHSA excess matters most when you are also planning a down payment. If you want to use both accounts, see our guide to using the FHSA and Home Buyers' Plan together, the HBP repayment rules, and the overview of first-time buyer programs. Our down payment guide and the calculators help turn your room into a savings plan.
Questions people ask
What is the penalty for over-contributing to an FHSA?
The CRA charges a tax of 1% per month on the highest excess FHSA amount in that month. It continues each month until the excess is eliminated, either by new room on January 1 or by removing amounts from the FHSA.
How do I remove an FHSA excess?
The CRA lists a designated withdrawal, a designated transfer to an RRSP or RRIF, or a taxable withdrawal. The first two are not included in income. A taxable withdrawal is included in income and is the least favourable option.
What form do I use to fix an FHSA over-contribution?
Form RC727 is the designation form you give your FHSA issuer. The tax is reported on Form RC728 (FHSA return) with RC728-SCH-A (Schedule A, Excess FHSA Amounts).
When is the FHSA return due?
The CRA says it is due by June 30 of the year following the calendar year in which the tax arose. Any tax payable is due no later than June 30 after the end of that year.
Do RRSP transfers count toward FHSA room?
Yes. The CRA says contributions plus RRSP-to-FHSA transfers are measured against your participation room. A $7,500 transfer plus a $2,000 contribution in a year with $8,000 of room creates a $1,500 excess.
How much FHSA room do I get each year?
Your first year's room is $8,000. In later years it is up to $8,000 plus carryforward, with carryforward capped at $8,000, so up to $16,000, and there is a $40,000 cap that is reduced by prior contributions and transfers.
Does unused FHSA room carry forward?
Yes, up to $8,000. The CRA says carryforward is $0 in the year you open your first FHSA, and after that it is capped at $8,000 and depends on your prior-year room, contributions and withdrawals.
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Sources
Canada Revenue Agency (CRA), What happens if you contribute or transfer too much to your FHSAs (modified February 2, 2026: excess definition, 1% per month tax, examples, removal options, RC727, RC728 and RC728-SCH-A, T4FHSA boxes 36 and 38), Contributing to your FHSA (modified September 17, 2026: participation room, $8,000 carryforward cap, $40,000 cap, how to check room) and FHSA taxes payable, assessments and reassessments (updated February 2, 2026: June 30 filing and payment dates). The March example is illustrative and the arithmetic is ours.