Quick answer
Contributing more than your available TFSA room triggers a tax of 1% of the highest excess amount in the account for each month the excess stays, under the CRA contribution rules. The fix is to withdraw the excess promptly; the tax already charged for past months does not disappear.
The TFSA has no small allowance for mistakes. The month a contribution goes over your room, the meter is running, and it keeps running until the excess leaves the account.
What happens if you over-contribute to a TFSA?
The amount above your available room becomes an excess TFSA amount. The CRA charges a tax equal to 1% of the highest excess amount in the account for each month the excess remains, even a partial month. The tax is reported and paid through a separate TFSA return, not your regular income tax return.
That monthly structure is what makes an unnoticed excess expensive. A mistake found in the same month costs one month of tax. The same mistake found at tax time can have been charged for ten or eleven months, and the CRA often identifies it from institution reporting long after the contribution was made.
How is the TFSA excess tax calculated?
Take the highest excess amount in the account during a month and multiply it by 1%, per the CRA rules. Repeat for every month any excess remained. A $3,000 excess left in place from March through June is charged for four months: $30 per month, $120 in total, regardless of what the investments earned.
Two details in that calculation catch people. The tax applies to the highest excess in the month, so an excess corrected mid-month is still charged for that whole month. And the excess only shrinks when new room arrives or money is withdrawn, so waiting for the next January quietly buys several more taxed months.
What does an unnoticed excess actually cost?
The cost depends on two numbers: the size of the excess and how many months pass before it is removed. Small amounts caught quickly cost little; ordinary amounts left until tax season cost real money. The chart below prices one mid-sized excess at three discovery speeds, using the monthly excess tax alone.
What the same excess costs as the months pass
Late filing of the return adds penalties and interest on top of these amounts, which is why the discovery date matters more than the dollar figure. The habit that keeps the first bar in play is simple: reconcile room before contributing, and check again after any year with a withdrawal.
How do TFSA over-contributions happen by accident?
The most common route is re-contributing money withdrawn earlier in the same year. Room from a withdrawal returns on January 1 of the following year, not immediately. Other frequent causes: TFSAs at two institutions with no combined view, automatic contributions that keep running, and reading the annual dollar limit as a personal number.
The contribution room guide covers the reconciliation habit that prevents most of these: CRA data as the starting point, your own current-year record subtracted on top. A household that moved accounts, changed banks or automated savings during the year is exactly the household that should check before topping up.
How do you fix a TFSA over-contribution?
Withdraw the excess amount as soon as it is found. Removing it stops new months of tax from accruing, and prompt removal matters again later if a waiver is requested. Then confirm the numbers: your contributions across every institution for the year, your withdrawals, and the room the CRA shows for you.
Do not move the excess to another TFSA, and be careful about "fixing" it by stopping future contributions instead of withdrawing. The excess is measured against the account today; only a withdrawal or newly arrived January room reduces it.
Does withdrawing the excess cancel the tax?
No. Withdrawal stops the excess from being taxed in future months, but every month the excess existed, including the month of withdrawal, has already generated tax. That amount is still owed and still needs to be reported. Whether any of it can be forgiven is a separate question the CRA decides on request.
Which return reports the tax, and when is it due?
The tax is reported on Form RC243, the Tax-Free Savings Account return, with its schedule showing the month-by-month calculation. It is separate from the T1 income tax return, due by June 30 of the year after the excess occurred, and late filing adds penalties and interest on top of the excess tax itself.
Can the CRA waive the TFSA over-contribution tax?
The CRA can cancel or waive the tax when the excess came from a reasonable error and was removed without delay. That is a request, not an entitlement: it is made in writing, it explains what happened, and it shows the withdrawal was made promptly once the mistake was discovered. Records decide these requests.
This is why the order of operations matters. Withdraw first, gather the statements that show how the excess happened, then write. A request that arrives while the excess is still sitting in the account argues against itself.
Is there a grace amount like the RRSP has?
No. The grace amount people remember belongs to the RRSP's over-contribution rules, not the TFSA. A TFSA excess of one dollar is an excess, and the monthly tax applies to it. Anyone using both accounts should keep the two rule sets separate; the TFSA vs RRSP guide compares them side by side.
Does TFSA room come back after a withdrawal?
Yes, but not until January 1 of the following year, under the CRA withdrawal rules. The withdrawn amount is added to the next year's room. Treating that returning room as available in the current year is the single most common way a careful saver still ends up with an excess.
Sources and review notes
Mechanics were checked against the CRA contribution rules, the CRA withdrawal guide, the CRA room calculator and the RC243 return page. Reviewed in August 2026.
