A Tax-Free Savings Account (TFSA) overcontribution occurs when you put more money into your TFSA accounts than your available contribution room allows. The penalty is 1% per month on the excess amount — and it compounds every month until you withdraw the excess. Thousands of Canadians trigger this penalty each year, most commonly by re-contributing TFSA withdrawals in the same calendar year without realising that room is only restored on January 1 of the following year.
Quick answer: Over your TFSA limit? CRA charges 1% per month on the excess until you remove it. Most common mistake: withdrawing and re-contributing in the same year. Room only restores January 1 of the NEXT year. To fix: withdraw excess ASAP, file Form RC243, and pay the penalty by June 30 of the following year. Check your room in CRA My Account.
2026 TFSA Contribution Limit and Cumulative Room
| Year | Annual Contribution Limit |
|---|---|
| 2009-2012 | $5,000/year |
| 2013-2014 | $5,500/year |
| 2015 | $10,000 |
| 2016-2018 | $5,500/year |
| 2019-2022 | $6,000/year |
| 2023 | $6,500 |
| 2024 | $7,000 |
| 2025 | $7,000 |
| 2026 | $7,000 (confirmed) |
Total room at 18 for someone born in 1991 or earlier (turned 18 by 2009): $102,000 by 2026 (if no contributions ever made).
You can only accumulate TFSA room from the year you turn 18 (and become a Canadian resident). Someone who turned 18 in 2020 has accumulated room of $7,000 (2020) + $6,000 (2021) + $6,000 (2022) + $6,500 (2023) + $7,000 (2024) + $7,000 (2025) + $7,000 (2026) = $46,500 maximum by 2026.
How TFSA Room Works: The Withdrawal Re-Contribution Rule
This is where most overcontributions happen:
Rule: When you withdraw from a TFSA, the withdrawn amount is added back to your contribution room — but not until January 1 of the following calendar year.
Example:
- January 2026: You deposit $7,000 (your full 2026 room used)
- August 2026: You withdraw $7,000 (need cash)
- September 2026: You deposit $7,000 again
Result: You have over-contributed by $7,000 for September, October, November, and December 2026.
Penalty: $7,000 × 1% × 4 months = $280
If you had waited until January 2027 to re-deposit, there would be no overcontribution.
TFSA Transfers Between Institutions
Transferring your TFSA from one financial institution to another does not reduce your contribution room — if done as a direct transfer. The sending institution transfers the TFSA directly to the receiving institution without you ever touching the funds.
Wrong way (causes overcontribution):
- Withdraw from Bank A TFSA → money deposited in personal chequing account
- Deposit the cash into a TFSA at Bank B
This is treated as a withdrawal and a new contribution. If your room was used up, you are now over-contributed.
Correct way:
- Open a new TFSA at Bank B
- Ask Bank B to request a direct TFSA transfer from Bank A (complete the transfer form)
- The transfer moves as a TFSA-to-TFSA transfer — no contribution room impact
Calculating the Penalty
The 1% penalty applies to the highest excess TFSA amount in each month. It is calculated month by month, not day by day.
| Month | Excess Amount | Penalty for Month |
|---|---|---|
| September 2026 | $7,000 | $70 |
| October 2026 | $7,000 | $70 |
| November 2026 | $7,000 | $70 |
| December 2026 | $7,000 | $70 |
| Total | $280 |
If you remove the excess on November 15, the penalty for November is still $70 (highest excess in the month was $7,000 even if removed mid-month). CRA applies the highest balance for each complete month the excess existed.
Fixing an Overcontribution
Step 1: Withdraw the excess amount from your TFSA immediately to stop the penalty from accumulating further months.
Step 2: File Form RC243 — TFSA Return — by June 30 of the year following the overcontribution. Calculate and report the monthly penalty.
Step 3: Pay the penalty by June 30.
Requesting a waiver: If the overcontribution was an honest mistake and you have not been penalised before, CRA has discretion to waive or cancel the penalty. File Form RC243-SCH-A — Application for Waiver of Part XI.01 Tax. CRA considers whether you:
- Made a reasonable error
- Withdrew the excess promptly
- Have a clean compliance history
There is no guarantee of a waiver, but first-time, honest mistakes are often resolved with a reduced penalty or full waiver.
Other Common TFSA Mistakes
- Overcontributing when moving to Canada: Your TFSA room only accumulates from the year you become a Canadian resident aged 18 or older. If you moved to Canada in 2022 aged 25, your 2026 room is 4 years × $6K-$7K = max ~$26,500, not the full lifetime room.
- Non-resident contributions: If you are a non-resident of Canada and contribute to a TFSA, you are taxed at 1% per month on the contribution for each month you remain a non-resident. Non-residents should not contribute to TFSAs.
- US person contributing to TFSA: If you are also a US person (citizen or green card holder), TFSA growth may not be tax-free in the US and may trigger FBAR/FATCA reporting. Consult a cross-border tax advisor.
- Holding foreign investments that pay dividends: TFSA accounts do not exempt foreign (e.g., US) withholding tax on dividends. US dividends inside a TFSA are still subject to 15% US withholding (unlike inside an RRSP, which has treaty protection).
Related Canadian TFSA and Retirement Resources
- TFSA Contribution Limit 2026 — annual limits and cumulative room
- RRSP vs TFSA Guide — which is better for your situation
- TFSA vs RRSP Calculator — model the after-tax benefit of each
- CA Retirement Hub — all Canadian retirement guides
The safest practice: check your CRA My Account TFSA room before making any contribution — especially if you have made withdrawals in the same year. A 2-minute check prevents a potentially expensive and stressful overcontribution situation.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy