TFSA Over-Contribution Penalty: What to Do
Fix the mistake and avoid future penalties
The 1% Penalty Tax
If you contribute more to your TFSA than your available room allows, the CRA charges a penalty tax of 1% per month on the excess amount. The penalty applies for each month the over-contribution remains in the account.
Example: You over-contribute by $5,000. The penalty is 1% x $5,000 = $50 per month. If the excess remains for six months before you notice and correct it, you owe $300 in penalty tax. This penalty is reported on Form RC243 and must be filed by June 30 of the following year.
Unlike the RRSP, there is no grace amount for TFSA over-contributions. Even a $1 excess triggers the penalty. For the current year's limits, see our complete guide to the TFSA contribution limit for 2026.
How Over-Contributions Happen
Re-contributing withdrawn funds in the same year. This is the most common cause. When you withdraw from your TFSA, that room is not restored until January 1 of the following year. If you withdraw $10,000 and re-contribute $10,000 in the same calendar year, you have over-contributed by $10,000.
Holding multiple TFSAs at different institutions. Each financial institution reports to the CRA independently, but they do not coordinate with each other. If you hold accounts at three banks, it is easy to lose track of total contributions and exceed your room.
Relying on outdated CRA records. CRA My Account may not reflect recent contributions or withdrawals, especially early in the year. If you contribute based on CRA's displayed room without accounting for transactions not yet reported, you may accidentally exceed your limit.
What to Do If You Over-Contribute
If you discover an over-contribution, act immediately. Withdraw the excess amount as soon as possible to stop the monthly penalty from accumulating. You will need to file Form RC243 (TFSA Return) and Form RC243-SCH-A (Schedule A) to report the over-contribution and pay the penalty tax. These are due by June 30 of the year following the over-contribution.
In some cases, the CRA may waive or cancel the penalty if you can demonstrate that the over-contribution was a reasonable error and that you withdrew the excess as soon as you became aware. You must submit a written request explaining the circumstances.
The Best Defence: Track Your Own Room
Do not rely solely on CRA My Account to track your TFSA contribution room. Maintain your own records of every contribution and withdrawal across all your TFSA accounts. Before making any contribution, especially a large one, confirm your available room by reviewing your personal records against the CRA's last assessed amount. Understanding how your room interacts with TFSA vs. RRSP planning is also essential to avoiding costly mistakes.
