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Tax-Free Savings Account (TFSA) Excess Contributions
Income Tax Act Part XI.01 Taxes in Respect of Registered Plans
How is TFSA Contribution Room Determined?
How Much is the Tax on Excess TFSA Contributions?
TFSA Excess Contribution Examples - Timing is Important!
Keep Accurate Records of Your TFSA Contribution Room
Letter From Canada Revenue Agency re TFSA Excess Contribution
Can Canada Revenue Agency Waive the Tax on Excess TFSA Contributions?
TFSA Excess Contribution Court Cases
Canada Revenue Agency (CRA) Resources
How is TFSA Contribution Room Determined?
Your TFSA contribution room is determined at the beginning of each tax year. If you have $5,000 in contribution room, and make a $5,000 deposit to your TFSA, then you cannot make further contributions to your TFSA in the same tax year, even if you make a withdrawal. Withdrawn amounts will increase your contribution room, but not until the next tax year.
How Much is the Tax on Excess TFSA Contributions?
The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month. This means there will be a tax payable even if the excess amount is withdrawn in the same month in which it is contributed. You may also be charged a penalty of 100% of any income earned from the excess contribution.
If an excess contribution is not withdrawn, it carries forward into future years, and will only be reduced in future years by the annual TFSA limit. Thus, if the TFSA suffers a major loss so that the excess amount cannot be withdrawn, tax may be paid on that amount for many years.
TFSA Excess Contribution Examples - Timing is Important!
Tax Tip: The TFSA contribution room shown in your My Account throughout 2024, with the note "As of January 1, 2024", includes the 2024 $7,000 contribution limit. It is not reduced by any contributions made throughout 2024. The contribution room will not be updated in your My Account until at least the end of February 2025.
Example 1: John had $27,000 contribution room at the beginning of 2024, including the $7,000 limit re 2024. $27,000 is the amount that would be shown by CRA as 2024 contribution room in John's My Account. He made the following TFSA transactions:
 | Deposit of $27,000 on June 4th |
| Further deposit of $4,000 on July 15th |
| Withdrawal of the $4,000 excess contribution on July 25th, after he realized his mistake. |
The excess contribution amount is $4,000 for July, and John will pay a tax of 1% x $4,000, or $40.
Example 2: Jane had $27,000 contribution room at the beginning of 2024, including the $7,000 limit re 2024. She made the following TFSA transactions:
| Deposit of $27,000 on March 3rd |
| Withdrawal of $5,000 on June 4th |
| Further deposit of $4,000 on July 10th |
| Excess contribution of $4,000 not withdrawn |
The excess contribution amount is $4,000, for the months July to December inclusive. The tax payable is $4,000 x 1% x 6 months, or $240. The withdrawal of $5,000 on June 4th does not increase Jane's contribution limit until January 1, 2025.
Tax Tip: Withdrawals made throughout 2024 will not increase your contribution room until 2025!
Keep Accurate Records of Your TFSA Contribution Room
You cannot rely on CRA's My Account amount to determine your available TFSA contribution room. The information in My Account will not include any contributions that you have made in the current year. In fact, information for the prior year is not updated until financial institutions have filed their information slips with CRA in the following year, perhaps as late as April. For this reason, it is very important to keep accurate records yourself.
Tax Tips:
Your total TFSA contributions for the current year should be shown on your statements from your financial institution/brokerage.
There is no advantage to having more than 1 TFSA account - it just makes record-keeping more difficult.
Transferring Your Tax Free Savings Account Between Financial Institutions / Fees for Withdrawals or Transfers
If you want to transfer your TFSA to another financial institution, DO NOT just withdraw the funds, then re-deposit into an account at the new financial institution. This would constitute a withdrawal, and you cannot re-contribute the funds until the following year. You must get the new financial institution to do the paperwork to transfer the funds in the correct manner. Check with both the new financial institution and the old one to see if any fees are involved in doing this. Another alternative would be to withdraw everything from the old financial institution before the end of December, and deposit it to the new financial institution in January. There may be a fee for a full withdrawal from your TFSA. You would likely have some fees to pay to sell the investments at the old financial institution before you can do the withdrawal. Since the settlement date for sales of stocks is after the trading date, you'd also have to ensure the sale is done early enough so that the funds can be withdrawn prior to year end. If your TFSA is invested in a GIC it would have to mature before you could withdraw the funds. If your investments are in mutual funds, there may be early redemption fees.
Letter From Canada Revenue Agency (CRA) re TFSA Excess Contributions
If you receive a letter or assessment from CRA telling you you've overcontributed to your TFSA, withdraw the excess funds as soon as possible! Failing to do this may be very costly.
Can Canada Revenue Agency Waive the Tax on Excess TFSA Contributions?
S. 207.06 of the Income Tax Act allows the Minister of National Revenue to waive or cancel the tax payable if:
- the individual establishes to the satisfaction of the Minister that the liability arose as a consequence of a reasonable error; and
- the individual withdraws from the TFSA without delay:
- the amount of the excess contribution, and
- any income (including any capital gain) that is reasonably attributable, directly or indirectly, to the excess contribution.
Court decisions have provided guidance that a reasonable error does NOT include:
- a misunderstanding or misreading of one's contribution room;
- receiving poor advice;
- misreading a notice provided by the CRA; or
- a taxpayer's negligence, ignorance, or mere carelessness
TFSA Excess Contribution Court Cases
Saffari v. Canada (Attorney General) 2024 FC 1390: The self-represented taxpayer lost her appeal, and will be paying tax on the excess contributions for approximately 10 years, until the annual contribution limits manage to decrease the excess to zero.
Zazula v. Canada (Attorney General) 2022 FC 1156: Not a win for this self-represented taxpayer, who appealed CRA's negative decision, denying the 2nd request to cancel tax on TFSA excess contributions in 2017 and 2018.
Sangha v. Canada (Attorney General) 2020 FC 712: A rare and surprising win for the taxpayer. The Court allowed the appeal of CRA's negative decision, denying the request to cancel tax on TFSA excess contributions in 2017 and 2018.
If you'd like to review more cases of excess contributions, use this Federal Court search of decisions for TFSA excess contributions.
Canada Revenue Agency (CRA) Resources
RC4466 - Tax-Free Savings Account (TFSA), Guide for Individuals - lots of detailed information, and examples.
RC343 Worksheet - TFSA Contribution Room - use this worksheet to calculate your TFSA contribution room for the current year
Know the rules, and do not make excess contributions!
Don't rely on CRA reports of your TFSA limits - track everything yourself!
If you did make an excess contribution, withdraw the amount As Soon As Possible!
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Revised: November 14, 2024