Investment · TFSA
TFSA over-contribution penalty.
Put in more than your room and the excess is taxed at 1% for every month it stays in the account. Find your excess and what the tax adds up to.
The CRA taxes a TFSA excess at 1% per month for as long as it remains in the account. Example: $7,000 of room and a $12,000 contribution leaves a $5,000 excess, so the tax is $50.00 a month, or $200.00 over 4 months.
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How the penalty works
The CRA says an amount over your contribution room is “taxable at 1% per month for as long as it remains in your account” and advises withdrawing it as soon as possible. The excess is your contribution minus your available room. This tool charges 1% of that excess for each month you enter.
Worked example. Room $7,000, contribution $12,000: excess $5,000. Tax = $5,000 × 1% = $50.00 each month, so 4 months costs $200.00. Left for a full year it would cost $600.00.
The CRA calculates the tax on its own records, and it may waive or cancel all or part of it if it decides that is fair, for example after a reasonable error that you corrected by withdrawing. A withdrawal does not give the room back until January 1 of the next year; see the withdrawal and re-contribution calculator. Not sure of your room? Use the contribution room calculator.
Frequently asked questions
What is the penalty for over-contributing to a TFSA?
The CRA taxes the excess at 1% per month for as long as it remains in your account.
How do I stop the tax?
Withdraw the excess as soon as possible; the CRA says the tax applies for as long as it remains. Keep in mind the withdrawal does not restore room until January 1 of the next calendar year.
Can the CRA cancel the tax?
Yes, it may waive or cancel all or part of the tax if it determines that is fair. It looks at whether the tax arose from a reasonable error and how much was withdrawn to correct it. You ask through your CRA account or by mail.
Does this apply to non-residents too?
Contributions made while you are a non-resident are generally taxed at 1% per month while they remain in the account, according to the CRA’s non-residency page, and you cannot re-contribute tax-free until you become a resident again.
Sources
Checked
- CRA: If you over-contribute to a TFSA
- CRA: If you have to pay tax on a TFSA (waiver of tax)
- CRA: Withdrawing from a TFSA
- CRA: How non-residency affects your TFSA
Runs entirely in your browser. Nothing you type is sent or stored. This is an independent guide, not the CRA; confirm your own room in CRA My Account or your institution's records.
Not advice
The CRA assesses the actual tax from its records, so your assessed amount can differ from this estimate. Not tax advice.