TFSA Overcontribution
What happens when you go over your TFSA room, and how to fix it.
The short version
- Every dollar over your TFSA room is taxed at 1% per month, on the highest excess in each month. There's no $2,000 buffer like the RRSP.
- Withdraw the excess right away. The tax stops at the end of the month it's gone, or on January 1 when new room absorbs it.
- CRA usually sends a letter, then a TFSA assessment. You may also have to file form RC243 by June 30 of the following year.
- If it was an honest mistake and you fixed it quickly, ask CRA in writing to waive or cancel the tax.
- Deliberate overcontributions are treated far more harshly: income earned on them can be taxed at 100%.
TFSA Overcontribution: What to Do
The letter usually arrives in summer, about something you did the year before: you took money out in March, put it back in October, and thought that was fine. It wasn't, because the withdrawal didn't come back as room until January 1. Here's how the tax works and how to get out of it as cheaply as possible.
How the Tax Is Calculated
CRA charges 1% of the highest excess amount in each month the excess exists. It isn't pro-rated by day, and it isn't reduced by investment losses.
| Excess | Months before it's fixed | Tax |
|---|---|---|
| $2,000 | 3 | $60 |
| $6,000 | 4 (June to September) | $240 |
| $10,000 | until January 1 (7 months) | $700 |
If new room arrives on January 1 and covers the excess, the tax stops then. If it doesn't, it keeps going into the new year.
What to Do Right Now
- Work out the excess. Room on January 1, minus contributions this year (plus nothing for withdrawals this year). The method is on TFSA contribution room explained.
- Withdraw the excess immediately. The tax for the current month still applies, but it stops after that.
- Don't re-contribute until you're sure the room is there.
- Keep the records: statements showing dates and amounts of each transaction.
Got a TFSA letter or assessment from CRA?
Upload it. The Tax Document Analyzer explains how CRA calculated the excess and the tax, which months it covers, and the deadline to respond.
The CRA Paperwork
If you had an excess at any time in the year, you're generally required to file form RC243, the TFSA return, and pay the tax by June 30 of the following year. In practice, CRA usually writes first, then issues a TFSA notice of assessment based on what financial institutions reported. Check the numbers: institutions sometimes report transfers as withdrawals and deposits, which creates excesses that never existed. If the assessment is wrong, you can object, the same way as any assessment; see notice of reassessment: what to do.
Asking CRA to Waive the Tax
CRA can waive or cancel the tax if the excess came from a reasonable error and you removed it without delay. Write to CRA (it publishes the address on its TFSA pages) and explain:
- How the excess happened, in plain terms.
- When you found out, and when you withdrew it, with statements.
- Why it was an honest mistake (for example, a same-year re-contribution after a withdrawal, or a transfer reported wrongly).
Speed matters. A waiver is far more likely when the excess was removed within weeks than after a year of ignoring letters.
The Mistakes Behind Most Excesses
- Withdrawing and re-contributing in the same year.
- Moving a TFSA between banks as a withdrawal and deposit instead of a direct transfer.
- Two or three TFSAs at different banks, each contributed to as if it had its own limit.
- Trusting the room in My Account without subtracting this year's contributions.
The RRSP version works differently and does have a $2,000 buffer; see RRSP overcontribution. The basics of both accounts are on TFSA tax rules.
TFSA Overcontribution Questions
What is the penalty for overcontributing to a TFSA?
1% per month on the highest excess TFSA amount in each month, for as long as the excess remains.
Is there a buffer for TFSA overcontributions?
No. Unlike an RRSP, there is no $2,000 allowance. Any amount over your room is taxed.
How do I stop the TFSA overcontribution tax?
Withdraw the excess. The tax applies for each month the excess existed, including the month you withdraw it, and stops after that. New room on January 1 can also absorb it.
Can CRA waive TFSA overcontribution tax?
Yes, if the excess arose from a reasonable error and you removed it without delay. You request the waiver in writing with an explanation and statements.
Do I need to file a TFSA return?
If you owe tax on an excess TFSA amount, you generally must file form RC243 and pay by June 30 of the following year. CRA often issues an assessment based on financial institution reports.
Sources: CRA, Tax-free savings account (TFSA). Tax examples calculated by us. Checked October 2026.
Last reviewed October 4, 2026 against CRA and Government of Canada sources. How we check our facts.