TFSA over-contribution penalty: the 1% a month rule, and how to stop it
Short answer: the CRA charges 1% per month on the highest TFSA over-contribution sitting in your account in each month, for every month it stays there. A $3,000 excess that goes in during May and comes out in October is taxed for six months: $30 a month, $180 in total. Take it out the same month and you owe $30. The fix is to withdraw the excess now, then file a TFSA Return by June 30 of next year.
TFSA over-contribution penalty calculator
What will the excess cost you?
| If you remove it | Months taxed | Tax owed | Versus your plan |
|---|
Uses the CRA rule: 1% of the highest excess in the account during each month, and a month counts even if you remove the money later that same month. Assumes the excess stays at the same size. Estimates, not tax advice.
How the 1% a month tax works
Your TFSA contribution room is the 2026 dollar limit of $7,000, plus any unused room from earlier years, plus anything you withdrew in earlier years. Put in more than that and the extra is an excess amount. The CRA taxes that excess at 1% for each month it remains in the account.
Two details decide what you actually pay, and both come straight from the CRA's own examples.
- A month counts in full. If you over-contribute $2,000 in June and remove it later in June, you still owe 1% for June: $20. Leave it until September and you owe for June, July, August and September: $80.
- The highest amount in the month is what gets taxed. If you over-contribute $6,000 in August and withdraw $4,000 in mid-September, you still owe $60 for August and $60 for September, because $6,000 was the peak in both months. Remove the last $2,000 in October and October costs $20. Total: $140.
The tax is small per month, which is exactly why people miss it. It is easy to run for most of a year because the CRA usually finds out late. TFSA issuers report the year's transactions by the end of February, and the CRA typically sends notices through your CRA account or by mail in late spring. By then a mistake from the previous January can have run for twelve months.
| Excess | 1 month | 3 months | 6 months | 12 months |
|---|---|---|---|---|
| $1,000 | $10 | $30 | $60 | $120 |
| $3,000 | $30 | $90 | $180 | $360 |
| $7,000 | $70 | $210 | $420 | $840 |
| $10,000 | $100 | $300 | $600 | $1,200 |
One more line from the CRA matters: an excess that results from a deliberate over-contribution may be taxed under the advantage rules at 100%. The 1% a month regime is for honest mistakes. Do not leave money in on purpose to "earn through" the penalty.
The re-contribution trap that causes most excess amounts
The CRA lists three common causes: miscalculating your room, contributing to more than one TFSA without tracking the total, and the big one, putting back a withdrawal in the same calendar year without enough room.
Here is the rule people miss. When you take money out of a TFSA, the room does not come back right away. The amount you withdrew is added to your room on January 1 of the next calendar year. If you were already at your limit, withdrew $3,000 for a trip, then put the $3,000 back when plans changed, you have just over-contributed by $3,000. It does not matter that it is the same money.
The CRA's own example is exactly this: someone who has maxed out every year contributes the $7,000 limit, withdraws $3,000 for a trip that falls through, re-contributes it the same year, and creates a $3,000 excess. The second trap is switching banks for a better rate. If you withdraw from one TFSA and deposit into another yourself, the CRA treats the deposit as a brand new contribution. Its example: someone already at the limit moves $50,000 that way and owes $500 a month until the excess comes out. Ask the receiving institution for a direct transfer instead; the CRA says a direct transfer does not affect your room. Some institutions charge a transfer fee, so ask first.
Worked example: Maya's $3,000 mistake
Maya has used all her TFSA room through 2025. On January 2, 2026 she contributes $7,000, the full 2026 limit. In April she withdraws $3,000 for a car repair, then gets reimbursed by insurance and puts $3,000 back in May. Her room for 2026 was already zero, so the May deposit is a $3,000 excess.
- Tax per month: $3,000 × 1% = $30.
- She spots it in October and withdraws the $3,000 that month. Months taxed: May, June, July, August, September, October = 6.
- Tax owed: 6 × $30 = $180.
- Had she caught it in May: 1 × $30 = $30. Had she left it until December: 8 × $30 = $240.
The $3,000 she withdrew in April is not lost room. It comes back on January 1, 2027, along with the 2027 dollar limit, so she can put it back then.
How to fix a TFSA over-contribution, step by step
- Withdraw the excess now. Do not wait for a CRA letter. Every new month adds another 1%. Withdraw from the TFSA that is easiest to sell or move without other costs.
- Check your real room. Your CRA account shows room as of January 1, but it does not include this year's contributions and withdrawals until issuers report them. Keep your own tally from your statements.
- You do not need to call the CRA after you withdraw. Your financial institution reports the withdrawal.
- File a TFSA Return. Complete Form RC243 and Schedule A (RC243-SCH-A, Excess TFSA Amounts) and submit them by June 30 of the year after the excess. For a 2026 excess, that is June 30, 2027. You can upload them through "Submit documents" in your CRA account or mail them.
- Pay the tax using the TFSA payment type the CRA lists under payment options.
- If it was an honest mistake that you fixed quickly, the CRA has a process to request that the tax be waived or cancelled. Explain what happened and when you removed the excess.
If you skip the return, the CRA can still assess you; it says you may receive a TFSA notice of assessment later in the summer.
Your options, side by side
| Option | What it costs | When it fits |
|---|---|---|
| Withdraw the excess this month | 1% for the current month only | Almost always. It is the CRA's own instruction. |
| Withdraw, then request a waiver | Your time to write the request | A genuine mistake, removed promptly, with records to show it. |
| Leave it and wait | 1% every month it stays | Not a good fit for anyone; deliberate excess can be taxed at 100% under the advantage rules. |
For the room rules in full, see the TFSA contribution limit for 2026. Deciding where new savings should go first? Our RRSP vs TFSA comparison and TFSA vs HISA explainer lay out the options side by side. Every Looni calculator lives on the tools page.
Questions people ask
What is the penalty for over-contributing to a TFSA in Canada?
The CRA taxes any excess TFSA amount at 1% per month, calculated on the highest excess in your account during each month it remains. A $5,000 excess left for four months costs $200. Deliberate over-contributions may be taxed at 100% under the advantage rules.
If I withdraw the excess the same month, do I still pay?
Yes. The CRA's example: a $2,000 over-contribution made in June and removed later in June still owes 1% for June, which is $20. Removing it quickly limits the tax to one month.
Can I put back money I withdrew from my TFSA this year?
Only if you still have unused room. A withdrawal is added back to your room on January 1 of the next calendar year, not right away. Re-contributing it in the same year without room creates an excess taxed at 1% a month.
How do I report a TFSA over-contribution?
Withdraw the excess, then file Form RC243 (TFSA Return) and Schedule A (Excess TFSA Amounts) by June 30 of the year after the excess, and pay the tax. You can upload the forms through Submit documents in your CRA account.
How does the CRA find out about a TFSA over-contribution?
TFSA issuers report each holder's transactions for the year by the end of February. The CRA typically notifies people with an excess through their CRA account or by mail in late spring.
Can the CRA waive the TFSA over-contribution tax?
You can ask. The CRA has a process to request a waiver or cancellation of TFSA tax. It helps to show the excess was an honest mistake and that you removed it as soon as you noticed.
The coach is read-only. It tracks what goes in and out of your TFSA through the year and warns you before a deposit would push you over your room, with the date your withdrawn room comes back.
Sources
Canada Revenue Agency, If you owe tax on excess TFSA amounts (1% per month, highest excess in the month, June 30 filing, RC243 and Schedule A), If you over-contribute to a TFSA (issuer reporting, notification timing), Withdrawing from a TFSA (withdrawals added back on January 1 of the next year, re-contribution example), Requesting a TFSA transfer (direct transfers, the $50,000 example) andIf you have to pay tax on a TFSA (waiver or cancellation requests).