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The 30-second version
Over-contributed to your TFSA? The CRA charges 1% per month on the highest excess amount for every month it sits in the account. The fix is three moves: withdraw the excess now, file Form RC243 by June 30 of the following year and pay, and if it was an honest mistake, ask the CRA to waive the tax. The one question everyone asks: does January’s new contribution room fix it? Yes, it absorbs the excess, but the tax runs until it does, and waiting costs 1% a month for the privilege.
The numbers that matter in 2026
| Fact | Detail |
|---|---|
| Penalty rate | 1% per month on the highest excess amount in each calendar month |
| Partial months | Count as a full month. Over-contribute and fix it within June: $20 on $2,000. Leave it June through September: $80 |
| Full-year cost | A $10,000 excess left in for a full year costs $1,200 in tax, plus interest |
| Form to file | TFSA Return (RC243) + Schedule A (RC243-SCH-A) |
| Filing deadline | June 30 of the calendar year after the year the tax applies (2026 tax: June 30, 2027) |
| Deliberate over-contributions | Taxed at the 100% “advantage” rate, not the 1% rate |
| 2026 annual room (Jan 1 absorption) | $7,000. The 2027 figure is announced in the fall and is not claimed here |
How the penalty actually works
The 1% applies to your highest excess amount in each calendar month. Mid-month withdrawals do not shrink that month’s bill. Two worked examples, straight from the CRA’s own page:
- Over-contribute $2,000 in June, remove it in September: $20 a month for June, July, August and September = $80.
- Over-contribute $6,000 in August, withdraw $4,000 mid-September: still $60 a month for August and September ($120), because September’s highest excess was the full $6,000. Then $20 for October on the remaining $2,000.
Bottom line: every month of delay adds another 1%.
Deliberate over-contributions are punished far harder
The 1% rule covers mistakes. If the CRA believes an over-contribution was intentional, made to earn tax-free returns on the extra money, the income and gains on that excess can be taxed at the 100% advantage rate. The CRA takes all of it. This is not a paperwork drill.
Will January’s new room fix it?
This is the question behind most late-year panics. Every January 1, new TFSA contribution room arrives, and it absorbs any excess still sitting in the account. The tax stops from that point. But the tax does not stop retroactively, and it runs for every month in between. Here is the math on a $4,000 excess discovered in mid-October:
| Path | Months taxed | Tax bill |
|---|---|---|
| Withdraw it now | October only | $40 |
| Leave it for January | October, November, December | $120 |
Waiting costs $80 here. The bigger trap: if a January contribution was already planned, the new room gets eaten by the excess first, so that planned contribution can push the account right back over.
Two rules of thumb:
- Large excess (thousands): withdraw now, always. In one court case, the taxpayer’s excess was so large that roughly 16 years of new annual room would have been needed to absorb it. Waiting is not a strategy at this scale.
- Small excess in late December (a few hundred): withdrawing still wins. A $1,500 excess found on December 20 costs $15 for December; January room would cover it, but December’s $15 is still owed and that January room is gone. Withdrawing is free and it stops the clock.
One technical note: withdrawing the excess does not create new room. The excess was never room in the first place, so pulling it out changes nothing about the room balance. It just stops the monthly tax.
How over-contributions happen (the CRA’s top three)
- Miscalculating room and contributing too much, especially across multiple TFSAs without adding up the total.
- Re-contributing a withdrawal in the same year. Withdrawals only restore room on January 1 of the following year. Put it back early without spare room and it counts as a brand-new over-contribution.
- Trusting CRA My Account in January. Banks report TFSA contributions once a year (by end of February), so the CRA’s records can be stale for months. The number shown may not include recent activity.
The step-by-step fix
Step 1. Withdraw the excess right now. Do not wait for a CRA letter. The CRA monitors contributions annually and notifies people about excesses in late spring, and the 1% keeps accruing every month until then and beyond. There is no CRA form required to make the withdrawal. It is withdrawn from the TFSA like any other withdrawal.
Step 2. File Form RC243 and pay. If the tax applies for 2026, file Form RC243 (TFSA Return) plus Schedule A (RC243-SCH-A) and pay by June 30, 2027. Do not use RC339. That is an RRSP/RRIF form, not the TFSA return.
File by one of two paths:
- Online: “Submit documents” in CRA My Account.
- By mail: to the CRA’s TFSA Processing Unit:
- Sudbury Tax Centre: PO Box 20000, Station A, Sudbury ON P3A 5C1
- Winnipeg Tax Centre: PO Box 14000, Station Main, Winnipeg MB R3C 3M2
On the CRA’s payment-options page, select: “Other benefit, tax, fee or amount owing” → “Yes” → “An individual” → “TFSA”.
Step 3. Ask for the tax to be waived or cancelled (if it was an honest mistake). The CRA can waive or cancel all or part of the tax when it is fair to do so, mainly when the tax arose because of a reasonable error and the error was fixed. Send a letter explaining what happened and why relief is fair, via “Submit documents” or by mail to the TFSA Processing Unit addresses above.
- A waiver covers tax not yet assessed; a cancellation covers tax already charged.
- What actually works: fixing the error fast and showing it. The CRA looks at whether the error was corrected without delay once it was known. Courts have upheld CRA denials where taxpayers waited 18+ months after being notified, or had the correct information available and simply did not verify it. Misunderstanding the rules, relying on a bank advisor’s word, or being new to Canada are generally not enough on their own. (The commonly cited “~30 days” reading of “without delay” comes from case analysis, not from a published CRA deadline.)
- If the CRA says no, a second review can be requested through the same channels. After that, the next step is an application to the Federal Court. And to dispute the assessment itself, file a Notice of Objection (Form T400A) within 90 days of the assessment date.
What about the gains the excess earned?
Good news from a 2025 CRA technical interpretation: if the over-contribution was not deliberate and the 1% tax is paid, the income and gains earned on the excess can stay in the account. There is no requirement to remove them.
One catch: if the CRA grants a waiver of the tax, a condition of the waiver is withdrawing the excess and any income or gains attributable to it. Those withdrawn gains become taxable income for that year.
The expensive mistakes (avoid these)
- Re-contributing a withdrawal in the same year. This is the single most common cause. Withdrawn money only becomes room again next January 1.
- Trusting CRA My Account in the first months of the year. Banks file records by end of February; the CRA’s figure can lag for months. Always subtract this year’s contributions from it.
- Assuming January room means the excess can be ignored. It absorbs the excess, but every month until then costs 1%, and it eats the room set aside for January’s contribution.
- Contributing the full $109,000 lifetime maximum as a newcomer. Room only accrues for years as a Canadian tax resident. Arriving a few years ago and contributing the full cumulative maximum is one of the most expensive mistakes on this page.
- Doing it on purpose. Deliberate excesses face the 100% advantage rate. There is no scenario where this wins.
Where to go next
- Fixed the excess? Keep it from happening again: run the numbers in the TFSA Over-Contribution Risk Checker and read the full TFSA guide.
- Definitions for the terms on this page live in the glossary.
Sources
- CRA, “If you owe tax on excess TFSA amounts”: 1%/month mechanics, both worked examples, 100% advantage rate, late-spring notification, RC243 + RC243-SCH-A, June 30 deadline, filing methods, Sudbury/Winnipeg addresses, payment path: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/owing-tax/excess.html
- CRA, “If you have to pay tax on a TFSA”: waiver/cancellation criteria, letter process, second review, Federal Court, T400A 90-day objection: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/owing-tax/pay.html
- RBC Wealth Management, “TFSA over-contributions”: no form needed to withdraw; January room absorption: https://rbcwealthmanagement.bynder.com/m/38b30e0853242c15/original/TFSA-over-contributions.pdf
- Investment Executive: July 2025 CRA technical interpretation, income/gains on non-deliberate over-contributions can remain in the account: https://www.investmentexecutive.com/news/industry/income-and-gains-on-tfsa-overcontributions-can-remain-in-account-cra-says/
- MoneySense: prompt-correction math; $10,000 full-year example: https://www.moneysense.ca/save/investing/tfsa/what-to-do-if-you-overcontribute-to-your-tfsa/
- Wealthsimple TFSA FAQs: partial-month rule, RC243/Schedule A, re-contribution trap: https://www.wealthsimple.com/en-ca/learn/tfsa-faqs
- Money.ca: court treatment of “reasonable error” and “without delay”: https://money.ca/investing/small-tfsa-mistake-big-trouble
- Federal Court case analysis (non-resident room mistake; 18+ month delay denial): https://coaching.financialfreedom-llc.com/2026/a-canadian-who-lived-abroad-thought-she-followed-tfsa-contribution-rules-but-cra-surprised-her-with-a-penalty-tax/
- TFSA 2026 figures ($7,000 annual limit; $109,000 cumulative max; newcomer residency rule): verified against canada.ca 2026-09-29. The 2027 annual limit is not yet announced and is intentionally unstated.
Not financial advice, general information only. Tax rules summarized here were verified against CRA pages on 2026-09-30; individual situations differ and the CRA’s figures are the final word.