The Fine Print Canada · PUBLISHED 10 JUL 2026 · VERIFIED 10 JUL 2026 · CA EDITION

TFSA Over-Contribution Penalty: $300/Year 1% Monthly Tax

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A TFSA over-contribution can trigger a 1% monthly tax on the excess amount, so a $1,000 mistake costs $10 every month until you fix it.

The number that matters

The central number is 1%/month: the CRA taxes an excess TFSA amount at 1% per month for as long as it remains in the account.

How it quietly costs you

The first money leak is over-contributing to a TFSA, because the Income Tax Act imposes a 1% monthly tax on the highest excess amount in each month the excess remains.

The practical impact is steep: a $5,000 excess costs $50 per month, or $600 per year, until the excess is withdrawn or new room becomes available.

The CRA’s own guidance says not to wait for a notice and to withdraw the excess as soon as possible because the tax keeps accruing for as long as the excess remains.

The second, compounding trap

The second layer is misunderstanding TFSA room mechanics, especially that unused room carries forward and withdrawals do not free up room until the following calendar year.

That creates a compounding cost of inaction: if someone withdraws money and then re-contributes it in the same year without available room, they can accidentally create another excess contribution and restart the 1% per month tax cycle.

For 2026, the annual TFSA limit is $7,000, so someone who treats a withdrawal like immediate replacement room can over-contribute by thousands of dollars and keep paying tax month after month.

What this looks like in practice

Maya, 34, is a Toronto office manager earning $72,000 a year, with $41,000 in a TFSA and 11 years until retirement; she thinks she can “put back” money she withdrew earlier this year.

• She discovers her 2026 TFSA limit is $7,000, not “whatever she withdrew,” and any same-year re-contribution beyond available room can trigger the 1% monthly tax.
• She discovers a $2,500 excess costs $25 per month under the CRA rule, which is $300 a year if left unresolved.
• She discovers that a mistake left unchecked for a year is not a one-time fee: the CRA says the tax applies for as long as the excess remains, so a small error can become a recurring drag instead of a single penalty.

The full cost of doing nothing

For Maya, if a $2,500 excess persists for 11 years until retirement, the raw penalty stream is $3,300 at $25 per month, before any further compounding from additional mistakes or delayed correction.

That estimate assumes the excess remains constant, the penalty stays at 1% per month, and no CRA relief is granted; if the excess is larger or lasts longer, the cost rises proportionally.

What to do about it

• Check your TFSA room in CRA My Account under the TFSA section, then compare your current-year contributions against the displayed available room.

• Sign in to CRA My Account.

• Open your TFSA records and find your available contribution room.

• Compare all TFSA contributions and withdrawals for the current year against that room.

• Good looks like: you have at least $0 excess, and your contributions are at or below your available room.

• Withdraw any excess TFSA amount immediately through your financial institution, because the CRA says the excess is taxable at 1% per month until it leaves the account.

• Identify the exact excess amount across all TFSA accounts.

• Request the withdrawal from the account holding the excess.

• Keep proof of the withdrawal date and amount.

• Good looks like: the excess is removed before another month-end, stopping future 1% monthly charges.

• File the required TFSA return if you owe the tax, using Form RC243 through the CRA process for excess TFSA amounts.

• Confirm whether a TFSA Return is required for your situation.

• Complete Form RC243 with the excess amount and relevant months.

• Submit it and pay any assessed amount by the required deadline.

• Good looks like: the return is filed accurately and the penalty stops accruing once the excess is gone.

A myth worth clearing up

Myth: “A TFSA mistake is just a small one-time fee.” Fact: The CRA taxes the excess at 1% per month for as long as it remains, so the cost is recurring until corrected.

Sources

• https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributing/overcontribute.html
• https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/tax-payable-on-tfsas/tfsa-excess-amount-correspondence-explained.html

Researched 2026-07-10.

Corrections & disclosure: an AI-assisted, human-reviewed guide. Every figure is dated and sourced above. Spot something out of date or wrong? Tell us and we’ll correct it — corrections are noted here and in the video description.