If you overcontribute to your TFSA, the CRA can charge a penalty tax of 1% per month on the highest excess amount for each month it stays in the account.
What happens right away
- The overcontribution itself does not get reversed automatically.
- Your financial institution may not warn you in real time.
- CRA usually identifies the issue later after TFSA reporting is filed.
TFSA overcontribution penalty example
If you exceed your limit by $5,000 and leave it there for 4 months:
- Monthly penalty: $50
- Total penalty: $200
You may also owe tax on certain gains tied to intentional overcontributions.
How to fix it
- Withdraw the excess immediately.
- Keep statements showing withdrawal date and amount.
- Wait for CRA correspondence or file Form RC243 if required.
- If it was an honest mistake, request relief using Form RC4288.
Can CRA waive penalties?
CRA may cancel or reduce penalties if your error was reasonable and you corrected it quickly. Relief is discretionary, so include a clear explanation and supporting records.
Avoid this in the future
- Track room yourself, not only CRA My Account.
- Be careful with transfers between institutions.
- Remember withdrawals create new room only on January 1 of the next year.