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Storing your money in a Tax-Free Savings Account (TFSA) can be a great decision for your financial future, just like monitoring your credit scores or paying down high-interest debt. It is a great way to let your money grow and mature in a tax-free manner. However, before you open a TFSA, keep in mind that it is possible to over-contribute to one of these accounts. Here’s all you need to know about the possible consequences of over-contributing to your TFSA in Canada.

What Is A TFSA Over-Contribution?

As mentioned, a Tax-Free Savings Account can be a fantastic option for your finances, as long as you stay within the annual and lifetime contribution limits set by the Canada Revenue Agency (CRA). For 2024, the contribution limits for a TFSA in Canada are:

  • $7,000 annually (up from $6,500 in 2023)
  • $95,000 lifetime (if you’ve never contributed to a TFSA before)

So, if you go beyond your annual or lifetime limit, it will be considered a TFSA over contribution, which can lead to certain fines from the CRA.  

How Much Can You Contribute To Your TFSA? 

The maximum amount of money you can contribute to a TFSA is cumulative. This means any contribution room left from the previous year is added to the next year’s maximum annual contributions.

If you’ve never contributed since the year you turned 18, as far back as 2009, you can deposit up to $95,000 in 2024.

Similarly, any balances that you withdraw from it will eventually be added to your contribution room for the next calendar year.

What Are Penalties For A TFSA Over-Contribution?

The overall amount of money you can deposit into a TFSA without penalty is called your “contribution room”. Unfortunately, over-contributions are subject to a 1% penalty tax per month, solely on the contribution amount. For example,

  • In September, you over-contribute to your TFSA by $1,500. Your total TFSA deposit is $8,500 ($1,500 more than the 2024 annual limit)
  • If you don’t resolve the over-contribution by the end of the year, you’ll pay a 1% penalty on the over-contribution for September, October, November and December
  • $1,500 × 0.01 × 4 (months) = $60 in penalties for 4 months of TFSA over contributions       

Can’t Afford To Pay Your TFSA Over-Contribution Penalty?

If you’re unable to afford to pay your TFSA over-contribution penalty, you can contact the CRA to arrange a payment plan. However, if you’re unable to agree, you can also apply for a personal loan. With a personal loan, you can spread out your TFSA penalty costs over a few months to a few years.

How Do You Know If You’ve Over-Contributed To Your TFSA?

If you over-contribute to a TFSA, you’ll get a letter from the CRA telling you to withdraw the excess balance right away (if you haven’t done so already). They may also send you a “proposed TFSA return”, where they calculate the amount of tax you’re likely to owe them, based on data they collect from the financial institution that holds your TFSA.

If all those details are correct, just sign the proposed TFSA return form and enclose the amount you owe. If you consider the CRA’s assessment incorrect, you can send them a detailed explanation as to why you think so.        

What Should You Do If You’ve Over-Contributed?

If you have a penalty to pay for over-contributing to your TFSA, there are a few different choices when it comes to what you want to do next. The options include simply paying the penalty or appealing to the CRA. We will first take a look at how you can go about paying your over-contribution penalty. 

Pay The Penalty And Remove The Excess TFSA Contribution

You should look to remove the excess contribution as soon as you can. Not only will this save you money if you are paying the penalty, but will also show the CRA that you are working to rectify the mistake you made.

To pay your penalty, you need to file a special TFSA return (which is known as Form RC243) and send it to the CRA, along with your penalty payment. The major key here is to act quickly. The faster the excess amount is removed from your account, the lower the penalty and the better off you will be.

Send An Appeal  

Of course, you can also try and send an appeal to the CRA and see if they are willing to give you a break and waive the penalty. This request should include all of your personal information as well as a detailed look at what went wrong, how you are fixing it and why the TFSA over-contribution took place in the first place. 

It wouldn’t be a bad idea to pay the penalty even if you are planning on appealing to get the penalty waived. If the CRA accepts your appeal, they could reverse the penalty payment amount and send it back to you.

While there is no guarantee this will work, it could be worth a shot. However do note, that it can often take you upwards of a month or two to hear back from the CRA. 

How To Send An Appeal For A TFSA Over-Contribution

If you think a proposed TFSA return is wrong and you want the CRA to assess your situation again, you can send a request letter to either of the following addresses: 

TFSA Processing Unit
Canada Revenue Agency
Sudbury Tax Centre
Post Office Box 20000, Station A
Sudbury ON P3A 5C1
TFSA Processing Unit
Canada Revenue Agency
Winnipeg Tax Centre
Post Office Box 14000, Station Main
Winnipeg MB R3C 3M2

Remember to provide evidence to support your claim. The CRA will then review your request and send you a decision letter. If they don’t get a response, their assessment will be based on the data they have and will include any applicable penalties or interest.  

How To Avoid TFSA Over-Contribution Penalties

If you’ve over-contributed to your TFSA, don’t panic. You may still have time to resolve the situation before the CRA penalizes you. Plus, it happens to plenty of Canadians every year. Here are some things you can do to avoid TFSA over-contribution penalties:  

Track Your Contributions

You might be able to avoid penalties by simply monitoring your TFSA contribution room. Don’t just look at your bank statements, make sure to log into the CRA website to track your contributions from previous years and stay up-to-date with your TFSA limits in Canada. However, be aware that your CRA My Account won’t include contributions from the current year. To get the latest overview of your account, you’ll have to talk to your TFSA provider or contact the CRA to request a TFSA transaction summary.         

As such, it may be in your best interest, to track all your TFSA contributions manually. You can use a spreadsheet to track your contribution amounts, the dates you contributed, and how much contribution room you have left for the year. You can also use the same spreadsheet to track your RRSP contributions and add them to your overall budget. 

Withdraw The Excess 

If you receive a warning letter from the CRA or notice that you’ve over-contributed to your TFSA, it’s best to withdraw the excess money immediately by talking to your financial institution or moving it yourself via online banking. Otherwise, the CRA will charge you for each calendar month that the extra money remains in your account.

So, even if you remove the excess money within the first week or so of January, you’ll still get charged for the full month. If you receive a proposed TFSA return (or RC243), it’s better to fill it out and send them a cheque for the penalty fee, whether you’re going to appeal or not. In that event, the CRA will reimburse the fee if they accept your appeal.          

Plead Your TFSA Over-Contribution Case

Alternatively, if you plead your case to the CRA, they may be understanding, as long as you have a reasonable explanation for the over-contribution and you withdraw the extra money from your TFSA right away. You can do this by resolving the situation with your bank, and then sending the CRA a detailed letter showing the steps you’ve taken to do so.    

What Is A TFSA?

A TFSA is a flexible way for you to save money in a tax-sheltered manner. While TFSA contributions are not tax-deductible for income tax like an RRSP, the interest, capital gains, and dividends earned on your contributions are tax-free. But, keep in mind that foreign-listed stocks and funds may be subject to a percentage withholding tax on their dividends. For example, U.S. stocks lose 15% of dividends unless held in an RRSP.

This is great as it allows the money to grow and compound faster. A TFSA also doesn’t have to be a cash savings account (despite its name). It can be used to hold qualified investments as well. This would include, cash, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, and bonds. 

If you have unused contributions in previous years, that can carry forward and allow you to contribute more than the annual limit. 

Watch Out For TFSA Over Contribution

Even though the penalties for a TFSA over-contribution aren’t necessarily enormous, they’re still something to consider if you want to make the most out of your account. Our two top tips for TFSA contributions are to keep a spreadsheet to track your contributions and monitor your banking activity and your CRA My Account regularly.

TFSA Over Contribution FAQs

How much can I put in my TFSA?

The CRA’s designated TFSA contribution limits vary from year to year. For 2024, their annual maximum limit is $7,000 and the lifetime maximum limit is $95,000. If there is excess money in your TFSA after the tax year ends, you’ll pay a 1% penalty per month.

Can I contribute to my TFSA after a withdrawal?

Withdrawing from your TFSA gives you contribution room for the next year, not the current one. So, if you contribute the annual limit of $7,000 but withdraw $1,000 in 2024, you must wait until January 1, 2025, to get that contribution room back. If you replaced that $1,000 in 2024, it would be considered a TFSA over contribution. If you withdraw from your TFSA, you won’t lose that contribution room forever. You can re-contribute the amount in the following year (or years) and your contribution room will carry forward indefinitely.

Do withdrawals affect my contribution room?

Unlike with some investment accounts, such as RRSPs, the funds in a TFSA are not locked in, so you can technically withdraw them wherever you want. However, that money is still included in your TFSA contribution limit and you can’t just replace it. You have to wait until the following year to replace the money and avoid over-contributing. See the previous FAQ for an example.  
Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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