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TFSA Over-Contribution Penalty: How to Fix It & Avoid CRA Fees

Made a mistake? Don't panic. Here's exactly how to fix a TFSA over-contribution and potentially get the penalty waived.

November 22, 20256 min read

The TFSA Penalty

1% per month

On the highest excess amount in your TFSA during each month you're over the limit.

TFSA over-contributions happen more often than you'd think. Usually it's because someone withdrew money and re-contributed in the same year (forgetting the room doesn't restore until January), or simply lost track of their room. The good news: it's fixable.

How the 1% Penalty Works

The CRA charges 1% per month on your excess TFSA amount. Let me show you how painful this gets:

Example: $5,000 Over-Contribution for 6 Months

  • Month 1: $5,000 × 1% = $50
  • Month 2: $5,000 × 1% = $50
  • Month 3: $5,000 × 1% = $50
  • Month 4: $5,000 × 1% = $50
  • Month 5: $5,000 × 1% = $50
  • Month 6: $5,000 × 1% = $50
  • Total Penalty: $300

That's 12% annually on your over-contribution. Far more than any investment return you'd earn.

Step 1: Figure Out If You're Over

First, confirm you actually have an over-contribution:

  1. Log into CRA My Account - Check your TFSA contribution room
  2. Add up all contributions - From all your TFSA accounts across all institutions
  3. Compare - If contributions exceed your room, you're over

CRA Data Lag Warning

CRA My Account may not show recent contributions - banks report annually. Keep your own records throughout the year.

Step 2: Withdraw the Excess Immediately

The penalty is calculated on the highest excess amount during each month. The faster you withdraw, the less you pay.

Action: Withdraw ASAP

Contact your bank and withdraw the excess amount as soon as possible. Specify that you're correcting an over-contribution.

Step 3: File Form RC243 (TFSA Return)

You need to file a TFSA return to report the over-contribution and pay the penalty:

Required Forms:

  • RC243: TFSA Return - reports your over-contribution
  • RC243-SCH-A: Schedule A - details the excess amounts by month

File by June 30 of the year following the over-contribution (or 90 days after CRA's request).

Step 4: Request a Penalty Waiver

Here's the good news: the CRA can waive the penalty if the over-contribution was due to a "reasonable error" and you took steps to fix it.

When CRA May Waive the Penalty

  • You made an honest mistake (misunderstood the withdrawal re-contribution rule)
  • You received incorrect information from your bank
  • You withdrew the excess as soon as you became aware
  • This is your first TFSA over-contribution

How to Request a Waiver

  1. Write a letter to CRA explaining how the over-contribution happened
  2. Include proof that you withdrew the excess (bank statements)
  3. Submit with Form RC243 or mail separately to your tax centre

Sample Waiver Letter Points:

  • State this was an unintentional error
  • Explain the circumstances (e.g., "I didn't realize withdrawals don't restore room until the following January")
  • Note that you withdrew the excess on [date]
  • Request waiver of the penalty under taxpayer relief provisions
  • Commit to monitoring your room carefully going forward

Common Causes of Over-Contribution

1.

Same-Year Re-Contribution

Withdrew and re-contributed in the same calendar year without available room

2.

Multiple TFSA Accounts

Lost track of total contributions across different banks

3.

Using Wrong Room Amount

Relied on outdated CRA My Account data instead of personal records

4.

Transfer Mistakes

Did a withdraw-and-recontribute instead of a direct TFSA transfer between banks

How to Prevent Future Over-Contributions

  • Keep a personal spreadsheet tracking all TFSA contributions and withdrawals
  • Check CRA My Account before each contribution (but verify against your records)
  • Use direct TFSA transfers when moving money between institutions
  • Wait until January to re-contribute any withdrawn amounts
  • Set calendar reminders to check your room annually

The Bottom Line

A TFSA over-contribution isn't the end of the world. Withdraw the excess immediately, file the proper forms, and request a waiver. CRA is often reasonable with first-time honest mistakes.

The key is acting fast. Every month you stay over the limit costs you 1% of the excess amount. Don't let a small mistake become an expensive one.

Related Guides:

TFSA Contribution Room 2026 GuideTFSA Withdrawal Rules Canada

Never Over-Contribute Again

Waypoint Budget helps you track TFSA contributions so you always know exactly where you stand.