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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.

By Ahmad Jamal · Published November 22, 2025 · 6 min read

TFSA over-contributions happen more often than you'd think, usually because someone withdrew money and put it back in the same calendar year without realizing the room doesn't return until January. Maybe you just lost track across a few accounts. Either way, none of this makes you bad with money. It's fixable, and the faster you act, the less it costs.

Quick Answer

Fix a TFSA over-contribution by withdrawing the excess amount immediately, then filing CRA Form RC243 (TFSA Return) to report and pay the 1% monthly penalty. The penalty is charged on your highest excess balance for every month you're over the limit, so speed matters more than anything else. CRA can often waive the penalty for a first, honest mistake, like not knowing withdrawn room doesn't return until January, if you request it on the same form.

How the 1% Penalty Works

The CRA charges 1% on your excess TFSA amount for every month you're over the limit. Here's how fast that adds up:

1% a Month: $5,000 Over-Contribution

Month 1$50
Month 2$50
Month 3$50
Month 4$50
Month 5$50
Month 6$50

Total: $300 over six months, which works out to 12% annualized. Far more than any investment return would 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 your contributions. Across every TFSA you hold, at every institution.
  3. Compare the two. If your contributions are higher than your room, you're over.

CRA's numbers can lag

CRA My Account doesn't always show your most recent contributions, since banks only report annually. Keep your own running total through the year so you're not caught off guard.

Step 2: Withdraw the Excess Immediately

The penalty is calculated on your highest excess amount during each month you're over, so the faster you withdraw, the less it costs you.

Withdraw the excess as soon as you can

Contact your bank and pull out the excess amount right away. Tell them specifically that you're correcting an over-contribution so it gets coded correctly.

Step 3: File Form RC243 (TFSA Return)

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

Forms You'll Need

  • RC243 (TFSA Return): reports your over-contribution to CRA
  • RC243-SCH-A (Schedule A): breaks the excess amount down by month

File by June 30 of the year after the over-contribution, or within 90 days if CRA specifically asks for it.

Step 4: Request a Penalty Waiver

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

When CRA May Waive the Penalty

  • It was an honest mistake, like misreading the withdrawal and re-contribution rule
  • Your bank gave you incorrect information
  • You withdrew the excess as soon as you realized
  • It's your first TFSA over-contribution

How to Request a Waiver

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

What to Include in Your Waiver Letter

  • State plainly that this was an unintentional error
  • Explain what happened, for example "I didn't realize withdrawals don't restore room until the following January"
  • Note the exact date you withdrew the excess
  • Ask CRA to waive the penalty under the taxpayer relief provisions
  • Say how you'll avoid it going forward

Common Causes of Over-Contribution

A few patterns show up again and again:

  • Same-year re-contribution. You withdrew money and put it back in the same calendar year, before new room opened up. See our withdrawal rules guide.
  • Multiple TFSA accounts. Contributions spread across a few different banks are easy to lose track of.
  • Outdated room numbers. CRA My Account hadn't caught up with your most recent contribution yet, so the number you trusted was already stale.
  • Transfer mistakes. A withdraw-and-recontribute instead of a direct, institution-to-institution TFSA transfer.

How to Prevent Future Over-Contributions

A few habits keep this from happening again:

  • Keep your own running total of TFSA contributions and withdrawals
  • Check CRA My Account before contributing, but verify it against your own records
  • Use direct institution-to-institution TFSA transfers instead of withdraw-and-recontribute
  • Wait until January to re-contribute anything you've withdrawn
  • Set a yearly reminder to check your room

The Bottom Line

A TFSA over-contribution isn't the end of the world. Withdraw the excess right away, file RC243, and ask for a waiver if it was an honest mistake. CRA is usually reasonable about first-time errors.

The one thing that actually matters is speed. Every month you stay over the limit costs another 1% of the excess, so don't let a small slip turn into an expensive one.

Never Over-Contribute Again

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Disclaimer

This article is for informational and educational purposes only and does not constitute financial, tax, investment, or legal advice. Contribution limits, tax rates, benefit amounts, and government program rules are approximate and change over time. Always verify current figures directly with the Canada Revenue Agency (CRA) and consult a qualified financial advisor, accountant, or tax professional before making decisions about your money. Waypoint Budget does not provide professional financial advice, and using our content does not create an advisory relationship.