TFSA Over-Contribution Penalty: The 1% Tax, Causes, and Waivers

If you put more into your Tax-Free Savings Account than your available room allows, the CRA charges a TFSA over-contribution penalty of 1% per month on the highest excess amount in the account during that month, and the tax keeps accruing until you either withdraw the excess or gain enough new room on January 1 of the following year to absorb it.¹ The fastest way to stop the bleeding is to remove the excess now. Everything else, including the paperwork and any request to have the tax waived, follows from that.

How the 1% Monthly Tax Is Calculated

The tax is 1% of the highest excess balance in your TFSA during a given month, charged for every month the excess is there. Even a single day of over-contribution triggers the full month’s charge. Deposit $3,000 above your limit on March 1 and pull it back out on March 2, and you still owe $30 for March.

It compounds by delay, not by interest. The CRA’s own example: over-contribute $2,000 in June and leave it until September, and you owe $20 for each of those four months, or $80 total. Catch it and withdraw in June and you owe $20.¹ Every additional month is another full percent. That’s why the first move, before any form, is getting the excess out of the account.

The Most Common Cause: Withdrawing and Re-Depositing in the Same Year

Most over-contributions aren’t reckless. They come from a rule people don’t realize applies to them: when you withdraw money from a TFSA, that amount is added back to your contribution room, but not until January 1 of the following calendar year.² The room is not restored right away.

A typical case: you take out $10,000 in March for an emergency, then redeposit $10,000 in August once your cash flow recovers. If you had no unused room before the withdrawal, the entire $10,000 you put back is excess, even though it’s the same money that came out. You don’t get that room back until January 1 of the next year, and in the meantime the CRA charges $100 per month starting in August.²

If you want to put withdrawn money back in the same year, you need to confirm you have unused room from prior years to absorb it. Otherwise, wait until January 1.

Check Your Own Numbers, Not the CRA’s

Before deciding how much to remove, calculate your available room yourself. Your room for the current year equals the year’s dollar limit, plus unused room carried forward, plus any withdrawals from the previous calendar year, minus contributions you’ve already made this year. For 2026, the annual dollar limit is $7,000.³ You only started accumulating room the year you turned 18 and became a Canadian resident.⁴

The CRA explicitly warns against trusting the contribution room figure shown in CRA My Account. That number is updated only once a year, in the spring, after financial institutions report the previous year’s transactions.³ Anything you’ve deposited or withdrawn since that update won’t be reflected. Use bank statements and do the math.

What to Do If You’ve Already Over-Contributed

Two steps, in this order.

First, withdraw the excess from your TFSA immediately. Every month it stays adds another 1%, so the value of acting today versus next week is real money. Don’t wait for the CRA to write to you.

Second, file Form RC243 (the TFSA Return) by June 30 of the year following the year in which the excess existed.⁵ With it, complete Schedule A (Form RC243-SCH-A), which walks through the year month by month to identify the highest excess balance in each month and the 1% tax owed on it.⁶ You’ll need your SIN, exact dates and amounts of every contribution and withdrawal during the year, and your opening room balance.

Payment is due at the same time you file. If you miss June 30, a late-filing penalty applies and interest accrues on the unpaid balance at the CRA’s prescribed rate, which is 7% annually as of the first quarter of 2026.⁷ You remain responsible for filing and paying whether or not the CRA sends you a notice.⁸

When the CRA Will Notice

The CRA doesn’t see TFSA transactions in real time. Financial institutions report them once a year, and correspondence typically follows in the year after the over-contribution.⁹ You may receive an educational letter flagging a potential problem and asking you to review your records, or you may receive a notice of assessment with the tax already calculated. Silence for a few months isn’t a sign you’re safe. It’s a sign the reporting cycle hasn’t caught up yet.

Asking the CRA to Waive the Tax

The CRA can cancel or waive all or part of the over-contribution tax when it considers doing so fair. The two things it weighs most heavily: whether the over-contribution came from a reasonable error, and whether you removed the excess promptly once you realized what happened.⁵ Leaving the money in the account after you know about the problem is close to fatal for a waiver request.

The CRA asks for a letter explaining why the over-contribution happened and why cancelling the tax would be fair.⁵ You can also submit Form RC4288, the general taxpayer relief request, to ask for cancellation of penalties and interest.¹⁰ Explain what caused the error, when you found out, and what you did to fix it.

Situations where relief is commonly granted include a processing error by your financial institution, incorrect contribution room information from the CRA itself, and a genuine misunderstanding of the withdrawal re-contribution rule. Deliberately over-contributing to earn extra tax-free returns will not qualify, even briefly.

A Separate 1% Tax if You Contribute as a Non-Resident

If you contribute to a TFSA while you are a non-resident of Canada, a separate 1% monthly tax applies to that contribution for as long as it stays in the account, regardless of whether you have room available. It continues until you withdraw the full amount or become a Canadian resident again. If the non-resident contribution also pushes you past your available room, the CRA can charge both the non-resident tax and the excess contribution tax on the same money at the same time.¹¹

1
Canada Revenue Agency. Tax-Free Savings Account (TFSA) – Excess Amount
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Canada Revenue Agency. Withdrawing From a TFSA
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Canada Revenue Agency. Calculate Your TFSA Contribution Room
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Canada Revenue Agency. Before You Contribute to a TFSA
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Canada Revenue Agency. Owing Tax on a TFSA
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Canada Revenue Agency. RC243-SCH-A Schedule A – Excess TFSA Amounts
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Canada Revenue Agency. Interest Rates for the First Calendar Quarter
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Canada Revenue Agency. Tax Free Savings Account – Watch Your Limit and Stay Within It!
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Canada Revenue Agency. Excess TFSA Amount Correspondence Explained
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Canada Revenue Agency. How to Apply – Cancel or Waive Penalties and Interest at the CRA
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Canada Revenue Agency. If You Owe Tax on Non-Resident TFSA Contributions