Your online banking app can show the wrong TFSA room for today, especially after transfers or withdrawals. The difference can cost real money. Excess TFSA.
Your online banking app can show the wrong TFSA room for today, especially after transfers or withdrawals. The difference can cost real money.
Quick answer: TFSA overcontribution 1 percent tax
Excess TFSA contributions generally attract a 1% monthly tax on the highest excess in the month. Withdraw the excess promptly, calculate the months involved and address any required CRA return and potential relief request.
What counts as a TFSA contribution?
Cash deposits and transfers of property into a TFSA consume available room at the amount credited. Direct transfers between your own TFSAs through institutions normally do not consume new room, but withdrawing money and redepositing it yourself can. You must count activity at every institution.
Why is the CRA contribution-room display sometimes behind?
Banks report TFSA transactions after the year ends. Your CRA account may not yet show current-year deposits or withdrawals. Track transactions yourself using January 1 room plus current-year contributions; do not use an earlier withdrawal to create new room until the next calendar year.
How is the 1% monthly tax calculated?
The tax generally applies to the highest excess TFSA amount in each month. Even a brief excess during a month can count for that month. The calculation continues while excess amounts remain and can become more complicated if you are also a non-resident contributor.
What is the first step when you discover an excess?
Determine the actual excess across all accounts and withdraw enough to correct it promptly. Preserve the statement and transaction dates. Do not assume the bank can erase past monthly liability or that a normal account transfer will always solve the reporting.
Can CRA waive or cancel the penalty?
CRA has a discretion-based relief process in limited circumstances, such as reasonable error and prompt removal. Relief is not automatic merely because the excess was accidental. Support your explanation with dates, account records and evidence of corrective action.
What if you withdraw and redeposit in December?
A December withdrawal is not available as recontribution room until January 1 of the following year. A rushed redeposit can create a fresh excess tax. Watch for multiple-account activity and the return’s individual filing requirements if CRA requests a TFSA tax return.
See how it works: a realistic example
Asha has $2,000 of unused TFSA room. She deposits $5,000 in May, creating a $3,000 excess. Assuming no other changes, the potential monthly tax is about $30 for each month the highest excess remains $3,000; correcting it in May can prevent later months.
Quick-reference table: compare your situation
Your situation | What this means | What to do next |
Deposit exceeds room | Potential 1% monthly tax | Remove excess and calculate months. |
Bank-to-bank direct transfer | Usually does not use new room | Use the institution transfer process. |
Withdrawal then same-year redeposit | May create an excess | Wait for next January if room is insufficient. |
What to do next: five simple steps
Start with your actual facts: what counts as a tfsa contribution. Record the relevant dates, amounts and people involved.
Check the ordinary rule and eligibility: why is the cra contribution-room display sometimes behind. Save supporting documentation.
Consider the complication: how is the 1% monthly tax calculated. Model the tax outcome rather than relying on an account balance.
Check exceptions and special cases: what is the first step when you discover an excess. Reconcile the decision with applicable CRA guidance.
Prepare for filing or the transaction: what if you withdraw and redeposit in december. Keep a dated record and revisit the rules for the relevant tax year.
Common mistakes to avoid
Assuming a general rule covers every exception. CRA has a discretion-based relief process in limited circumstances, such as reasonable error and prompt removal.
Using an outdated dollar limit, tax rate or deadline without checking the exact calendar year and the person’s province.
Forgetting receipts, election forms or the separate reporting rules described in this guide.
Frequently asked questions
These short answers assume an ordinary situation. The legal details can change with the tax year, documents and family or business facts.
Can I rely on CRA My Account for real-time room?
No. Recent transactions may not appear yet.
Is one accidental excess contribution always forgiven?
No. Relief is discretionary and must meet the conditions.
Does withdrawing erase earlier penalty months?
No. Withdrawal generally prevents further excess months but does not undo the past.
Keep reading: related Presyz guides
FHSA Overcontributions and RRSP Transfers: How to Correct Errors
TFSA Non-Resident Contributions and Canadian Tax Exposure
Official sources: verify the tax rules
How Presyz can help
Presyz is an accounting and taxation practice in Toronto. This guide is educational information based on official guidance reviewed October 28, 2026. Tax law, annual amounts and CRA administrative guidance can change before the scheduled publication date. Contact our team if you need help with the facts of your own return or business.
General educational content only. Verify current CRA and provincial guidance before acting.