The Fine Print Canada · PUBLISHED 15 JUL 2026 · VERIFIED 15 JUL 2026 · CA EDITION

Your TFSA Re-Deposit Penalty: $100/Month You Can Avoid

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If you accidentally put $10,000 back into your TFSA too early, the CRA can charge you $100 per month in penalty tax until you fix it.

The number that matters

1% per month — this is the tax the Canada Revenue Agency charges on the highest excess TFSA amount in your account for each month that the over‑contribution remains, effectively a 12% annual penalty on money you thought was growing tax‑free.

How it quietly costs you

Mechanism: recontributing a TFSA withdrawal in the same calendar year before the contribution room resets.

• The CRA explicitly states that when you withdraw from a TFSA, the amount you withdraw is not added back to your TFSA contribution room until January 1 of the following year.
• You may only re‑contribute that withdrawn amount in the same year if you still have available TFSA contribution room (current‑year limit plus unused room from prior years).
• If you replace a withdrawal in the same year without available contribution room, the CRA treats this as an over‑contribution, called an “excess TFSA amount.”

Impact: 1% per month penalty on the excess (no buffer, starts at the first dollar).

• CRA’s TFSA guide: “You will be subject to a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.”
• There is no $2,000 grace room like RRSPs; the penalty applies from the first dollar of excess.
• Example (2026 contribution limit): the maximum TFSA contribution limit for 2026 is $7,000.
• If you have fully used your room for 2026 and withdraw $5,000 in June, then re‑deposit that $5,000 in July, you have $5,000 of excess TFSA amount because the withdrawal doesn’t restore room until January 1, 2027.
• CRA charges 1% of $5,000 = $50 per month, for every month that $5,000 excess remains (e.g., July to December = 6 months → $300 in penalty tax).

Old vs better behaviour:

• “Old”/mistake behaviour: treat TFSA like a regular savings account and freely take out and put back money in the same year without tracking room.
• Result: easy to trigger the 1% per month penalty on any excess amount.
• “Better” behaviour:
• Only re‑deposit same‑year withdrawals if you clearly have unused room (current year plus carry‑forward).
• Otherwise, wait until January 1 of the next calendar year—when the withdrawal is formally added back to contribution room—to avoid penalties.

The second, compounding trap

Mechanism: letting the excess TFSA amount sit for months or years without correcting it.

• The CRA calculates the tax on the highest excess TFSA amount for each month the excess remains in your TFSA.
• If you don’t withdraw the excess or offset it with new contribution room in a later year, the 1% monthly tax keeps applying every month.
• You must also file a special TFSA return and pay the penalty tax by June 30 of the year following the over‑contribution.

Impact: compounding long‑run cost (penalties + lost tax‑free compounding).

• Penalty side:
• Example: an accidental over‑contribution of $10,000 left in place for 18 months:
• Monthly penalty: 1% × $10,000 = $100 per month.
• 18 months of inaction: $100 × 18 = $1,800 in CRA penalty tax.
• Lost growth side (illustrative modelling):
• Assume that $10,000 would otherwise earn 5% annual return, tax‑free inside the TFSA.
• Over 18 months, 5% annual compounded approximates 7.5% total growth, or about $750 of tax‑free gains.
• Because the penalty is being paid from your resources, the effective drag is $1,800 in penalty plus the opportunity cost on that cash, making the over‑contribution equivalent to a negative 12% annual hit on that $10,000 versus simply waiting until you had room.
• This investment growth figure (5%) is an assumption for modelling; the exact return depends on your holdings.

Concrete long‑run scenario:

• Investor repeatedly withdraws and re‑deposits without tracking room, creating a $5,000 excess every few years and leaving it uncorrected for a full calendar year (12 months):
• Each episode: 1% × $5,000 × 12 months = $600 penalty.
• If this happens just three times over 20 years, that’s $1,800 in penalties plus lost tax‑free growth on those funds (modelling 5% annual, each $600 penalty could have grown instead; this extra cost is not CRA‑stated but mathematically implied).

What this looks like in practice

Persona:

• Name: Sarah
• Age: 32
• Job: Graphic designer in Toronto
• Income: $70,000 per year (assumption; used for context)
• TFSA type: investment TFSA at a bank brokerage
• TFSA total contributions to date: fully used her available room for 2026, including carry‑forward (assumed for scenario).
• Years to retirement target: 33 years (age 65).

Scenario:

• In March 2026, Sarah has maximized her TFSA room for 2026 (limit $7,000 for the year).
• In July 2026, she withdraws $8,000 for an emergency and then in September 2026, she deposits $8,000 back as soon as her cash flow improves, thinking withdrawals instantly create room.

This creates an $8,000 excess TFSA amount, because the withdrawal will only increase her room on January 1, 2027.

Discovery 1 — The hidden monthly penalty

• Sarah learns from CRA documentation that her $8,000 redeposit in September is an over‑contribution because she had no available TFSA room in 2026.
• CRA charges 1% of the highest excess amount each month — here, 1% of $8,000 = $80 per month.
• If she only discovers the mistake and withdraws the excess in December 2026, the excess existed for September–December (4 months) → $80 × 4 = $320 in penalty tax.

Comparison:

• She assumed recontributing was “free” because TFSA withdrawals are tax‑free, but the over‑contribution penalty is separate from withdrawal rules.
• Versus doing nothing (keeping the $8,000 in a regular savings account at 3% before recontribution next year), she has effectively paid $320 for moving money prematurely into the TFSA.

Discovery 2 — Penalty continues into the next year if not fixed

• If Sarah fails to withdraw the excess and brings the $8,000 excess into 2027, the 1% monthly tax continues.
• Assume she only notices the CRA letter in June 2027 and then withdraws the excess:
• 2026: 4 months × $80 = $320
• 2027: 6 months × $80 = $480
• Total penalty: $800 on the same mistaken redeposit.

Comparison:

• Versus simply waiting until January 1, 2027 to re‑contribute the $8,000, she would have paid $0 CRA penalty and achieved the same TFSA position by mid‑2027.

Discovery 3 — 30‑year cost of repeatedly making the same mistake

Assumptions for modelling (not CRA figures):

• Sarah accidentally over‑contributes $5,000 for 12 months once every 10 years (at ages 32, 42, and 52).
• Penalty each episode: 1% × $5,000 × 12 = $600.
• Three episodes over 30 years: $600 × 3 = $1,800 in CRA penalty tax.

Additional opportunity cost (modelled at 5% annual return):

• If each $600 penalty had instead stayed in her TFSA earning 5% per year, the first $600 paid at age 32 could grow for 33 years to retirement:
• Future value ≈ (600 \times (1.05)^{33}) ≈ (600 \times 4.32) ≈ $2,592 (modelled).
• Across three episodes, total foregone future TFSA value is roughly $5,000+ in lost potential tax‑free savings (modelled), on top of the $1,800 paid in penalties.

Comparison:

• Versus carefully tracking her TFSA room and never over‑contributing, Sarah avoids both the $1,800 in penalties and the multi‑thousand‑dollar loss in tax‑free compounding over her career.

The full cost of doing nothing

Using Sarah’s main scenario (one major mistake, then poor follow‑up):

Assumptions (modelling basis):

• One over‑contribution of $8,000, starting September 2026.
• Excess left in place for 18 months (September 2026 to February 2028) before Sarah finally fixes it.
• CRA penalty: 1% of $8,000 = $80 per month, every month the excess remains.
• Investment return assumption: 5% per year inside the TFSA if funds were handled correctly.

Headline combined cost:

• CRA penalties: 18 months × $80 = $1,440.
• If the same $1,440 had remained invested in the TFSA for 30 years at 5% annually, the future value at retirement would be approximately
• (1,440 \times (1.05)^{30}) ≈ (1,440 \times 4.32) ≈ $6,220 (modelled).
• Combined lifetime impact of this one mistake:
• $1,440 paid to CRA + about $6,200 in lost retirement value
• Total effective hit ≈ $7,600 over Sarah’s working life (modelled, not CRA‑stated).

This demonstrates how a single “too‑soon” TFSA redeposit can quietly drain thousands of dollars over a career when penalties and lost tax‑free growth are combined.

What to do about it

Move 1 — Check your exact TFSA contribution room before re‑depositing

1. Action: Verify your current TFSA room using CRA’s online tools before any recontribution.
2. Tool/portal:

• CRA My Account — TFSA section shows your TFSA contribution room, total contributions, and withdrawals recorded by CRA.

3. Steps:

• Log in to CRA My Account online.
• Navigate to the TFSA section and locate “TFSA contribution room” for the current year.
• Compare this available room to the amount you plan to re‑deposit; only recontribute up to the amount of available room.

4. What “good” looks like:

• Your planned contribution ≤ displayed TFSA contribution room.
• If the room shown is $0, do not re‑deposit withdrawn funds until January 1 of the next calendar year.

Move 2 — Use the calendar rule: wait until January 1 unless you’re sure you have room

1. Action: Apply the “next‑year recontribution” rule to any TFSA withdrawal.
2. Tool/portal:

• Your own calendar plus CRA TFSA rules guidance page on withdrawals.

3. Steps:

• When you make a withdrawal, note the calendar year in which it occurs.
• Assume the withdrawal amount only becomes new contribution room on January 1 following that year, unless CRA records show unused room already.
• If unsure, wait until January 1 to re‑deposit the withdrawn amount, and use CRA My Account to confirm the updated room before contributing.

4. What “good” looks like:

• All recontributions of withdrawn amounts happen in the year after the withdrawal, unless your CRA‑tracked TFSA room clearly shows sufficient unused space.

Move 3 — Fix over‑contributions immediately and file the required return

1. Action: If you suspect an over‑contribution, withdraw the excess promptly and regularize it with CRA.
2. Tool/portal:

• CRA My Account (to see contribution history and identify excess).
• CRA forms and guide for the TFSA return related to excess contributions (referenced in TFSA guide).

3. Steps:

• Check your TFSA transaction history and contribution room in CRA My Account; calculate any excess TFSA amount (contributions minus available room).
• Contact your financial institution and withdraw at least the excess amount from your TFSA as soon as possible to stop future months’ penalties.
• Complete the CRA’s TFSA excess contribution return and pay the calculated 1% per month tax by June 30 of the following year.

4. What “good” looks like:

• Any excess TFSA amount is removed in the same month it is discovered.
• Your calculated excess in CRA records returns to $0, and no additional 1% monthly tax accrues after the correction date.

A myth worth clearing up

Myth: “There’s no downside to taking money out of my TFSA and putting it back whenever I want — it’s all tax‑free.”

Fact: While withdrawals themselves are tax‑free, re‑depositing them in the same calendar year without available contribution room creates an over‑contribution, and the CRA charges 1% per month on the excess amount until it’s removed or covered by new room.

Sources

• https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/withdraw.html
• https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html

Researched 2026-07-15.

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.