TFSA Over Contributions

by Tax Guy - Burlington Accountant on February 16, 2010 Print This Post Print This Post

If you have contributed too much to your TFSA, you will be required to complete a tax form to calculate how much penalty tax you will have to pay. You might want to take a look at how to calculate the TFSA contribution room before reading the rest of this article.

Calculate Your Excess TFSA Contribution

The CRA refers to the over contribution as an excess TFSA amount. The excess TFSA amount is calculated as:

The total contributions made to all of your TFSA’s (except qualified transfers or exempt contributions)

  • Less: The unused TFSA contribution room at the end of the prior calendar year;
  • Less: The total of all withdrawals made in the prior calendar year (other than a qualifying transfers);
  • Less: The TFSA dollar limit for the calendar year;
  • Less: The total of all withdrawals made from all TFSA’s this year (other than a qualifying transfer or withdrawals that are more than the excess TFSA amount)

The TFSA Penalty tax

If you did have an excess TFSA amount, you will have to pay a 1% penalty tax for each month you were in an over contribution position. Unlike RRSP’s that use the value at the end of the month, the TFSA excess amount is based on the highest amount in your TFSA during the month.

Note: The excess amount is based on contributions and is not based on the change in value.

Assume you contributed $5,000 you your TFSA in January and it has grown to $6,000. Then in June, you contribute another $4,000. Your penalty tax will be $40 (1% of the $4,000).

You Have To File A TFSA Return

If you have an excess TFSA amount, then you have to file a Tax-Free Savings Account return (RC243) to calculate the penalty tax. The due date for this form is June 30, 2010.

Penalty Tax Also Applies If…

The 1% per month penalty tax also applies to your TFSA if you were a non-resident and made a contribution to a TFSA or if you held non-qualified investments in your TFSA.

Final Note

The Canada Revenue Agency has the power to waive the penalty tax if you can prove that you made a reasonable mistake and took steps to fix the situation. If you’re not sure, there is no harm in asking.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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Nj June 21, 2010 at 6:07 pm

It seems like PC Financial is a big culprit here. What’s the deal with this bank??? They were the rudest to deal with.
I transferred $5000 from ING to PC within 5 days of depositing my TFSA in Jan, 2009. I’m now getting dinged for $600. RIDICULOUS! I can’t even believe that the CRA is charging 1% on $5000 that doesn’t exist. How is this even legal?

I think a class action lawsuit is in order. It’s time to play US politics with this situation since no one is obviously listening…

joan June 22, 2010 at 12:34 pm

I am very upset that my husband accidentally over contributed in February when he topped the TFSA account to its original 5000 dollars. The irony of this, is that he only had the money out for’ one week’ and now we are being penalized one percent for the next eleven mos. Ellen Roseman in the Toronto Star was absolutely right when she wrote ‘It would be nice to see Ottawa do a public education campaign and waive penalties for over-contributions made in error during the first year.” Unfortunately I won’t hold my breath…in my opinion pay back time will be in the next election if the government resorts to such ‘ruthless practices’ as this one.

Andrea MacLean June 22, 2010 at 1:19 pm

My name is Andrea MacLean. I’m from CTV News Calgary.
We’re looking into this story and would like to speak to someone from Calgary tomorrow (June 23/10) who has facing penalties from the CRA for over contributing or for a mistake made while transferring money from one account to another.
Please feel free to call me if you are from Calgary and have been affected.

V.Schuster June 22, 2010 at 2:34 pm

lots of publicity re investing $5000 in a TFSA but little to warn buyers beware of pitfalls associated with . As a senior I particularly resent this approach. Feel the government should waive these penalties and present a more honest consumers aware program. I am sure the government is gloating over the $$$$$$$in its coffers. Shame on you our “elected” voice!!!!

Jinny June 22, 2010 at 5:52 pm

I am wondering if those excess amounts in 2009 that we were penalized will be carried over to 2010?

Say, I contributed $8000 (due to several transitions of deposits and withdrawals) to my TFSA accounts last year and penalized on the excess amount of $3000. Then will my limit for this year be $5000 or $2000? Should I immediately withdraw the excess amount of $3000 from last year?

This is so confusing!!
Any help?? Thank you in advance!

Tax Guy June 23, 2010 at 3:48 pm

Hi Jinny,
Your limit for this year would be $2,000 and the penalty would have stopped effective Jan 1, 2010.

BMIA June 23, 2010 at 4:48 pm

Actually, your limit would be $2000 assuming you actually contributed a net of $8000. By “net” I mean all deposits minus withdrawals.

If you contributed $8000 through a series of deposits and withdrew $3000 through a series of withdrawals then your net would only be $5000. Your contribution room for 2010 would be $5000 but you would be penalized on the $3000 over contribution.

Another example – suppose through your series of contributions and withdrawals you actually contributed $8000 and withdrew $4000. Your net would be $4000. Your contribution room would be $5000 + $1000 = $6000. But you would still pay a penalty on the $3000.

Now, here is where it gets confusing:
Suppose you recognized you had made deposits of $8000 into your TFSA and any amount of withdrawals (it doesn’t matter for this example). You recognize you are going to be slapped with a penalty so you withdraw $3000 so you won’t be having to pay the penalty for the remainder of the year. You must inform your bank that this isn’t an ordinary withdrawal but a withdrawal to remove excess contributions. if you fail to notify the bank that this is a withdrawal due to excess contributions then even though you withdrew the funds, you will be penalized for the $3000 as if it had never been withdrawn. You have to make the distinction between a regular withdrawal and a withdrawal due to excess funds.

If I haven’t confused you enough, yet, then here is the kicker:
suppose through a series of contributions and withdrawals you contributed $8000 and withdrew $8000. This leaves you with zero dollars in your TFSA. Unless you have clarified your withdrawals you will be assessed with a $3000 penalty even though you have zero dollars in the account. Your contribution room, however, will be $5000 + $5000 = $10000 for next year. So you pay a penalty for a $3000 over contribution on a TFSA that has zero dollars and you’ll be able to contribute $10000 next year.

Miya June 22, 2010 at 8:37 pm

I got suckered by TFSA as well. Feel like such a victim by govt. I am also with PC Financial with no warning of any sort of penalty. Since this is the first year TFSA is being offered, there wasn’t much awareness made to consumers. This is really ridiculous on behalf of the goverment and banks. I don’t even know how to pay this as I only see the option to pay by post which will take forever and will definitely miss end of month deadline. Suckered once again… Down 260$

… glad i’m not the only one…

David G Evans June 22, 2010 at 8:52 pm

I withdrew $1050.00 from Scotiabank TFSA on August 17/09 & deposited in my Canadian Tire TFSA on August 24/09. It was simply a transfer due to better interest rates. At no time did I exceed my $5000.00 deposit level for 2009.. The deal was promoted over RRSP in that you could withdraw money & replace it again. Only now do we find out we are heavily penalised. Not a very good job in promoting the deal. I am 85 yeaes opf age ,a veteran, have been active in Rotary , a member of council & am surprised at how little thought was given to this promotion. I might be old in years but I am NOT senile!

BMIA June 23, 2010 at 9:51 am

Hi Andrea,

I am from Calgary.

I will be hit with a penalty when 2010 income taxes are filed. I am being proactive about this and trying to get it rectified. It’s been quite an involved process, to date. I contacted my bank informing them that the transfer I did with my TFSA was not a “qualifying transfer” as set out by the rules of the TFSA and was actually a withdrawal and a subsequent contribution. Even though both accounts were with the same institution. The bank told me to contact the CRA, directly, and explain the situation.

In the meantime I also contacted our Department of Finance about this matter and they were adamant that they don’t get involved in taxes directly and that the Canadian Revenue Agency handles that. Fair enough, but when I told them the issue isn’t with the CRA which simply enforces the policies mandated to them by our Department of Finance they weren’t clueing into that message and referred me and my line of inquiry to the CRA (who is bound by the mandate given them by the Department of Finance). This isn’t a chicken and egg scenario. I absolutely know which came first.

Anyway, the CRA was helpful from the point-of-view that they indicated they cannot pursue matters proactively and can only make decisions based on tax records they already have. They directed me to contact my bank, again, and have them draft a letter explaining the situation that I can then file with my 2010 Income Taxes. No guarantee I still won’t be levied a penalty since there is no guarantee they will actually read the letter attached with my filing. So I must keep the letter with me and use it as a document for when I am assessed for a penalty and need to appeal it. So much for being proactive about this.

Currently, I am working with my bank to get this letter drafted. Right now, it looks like there may be mechanisms in place to have my wihdrawal and subsequent contribution re-classified as a qualifying withdrawal. If it turns out the mechanics are in place to do this, then hopefully the mechanics are in place with the banks to be able to do qualifying withdrawals in the first place (since it seems, from my experience, the mechanics were not in place for them to be able to do this earlier in the year).

I will give you a call.

db June 23, 2010 at 1:52 pm

I opened a $5,000 tax free account in one bank then transferred the funds to another Bank the next day. The $5,000 was transferred from within 24 hours.

Now I received a notice from TFSA penalizing me $500 for transferring the tax free money from bank to bank. They say I opened two accounts in the same year which is subject to penalizing.

I fail to understand a Government that encourages Savings Accounts then penalizes for transferring the allowable tax free amount.

Does anyone know how a person can dispute these penalties?

Roman June 24, 2010 at 12:04 am


First I just wanted to say thanks for the great blog and you work, keep it up !

I have a question about Excess TFSA Contribution. I understood from the article that to complain about this one needs to file the RC243 SCH-A form. But this form only re-states the calculation. In my case I actually made the mistake of putting in 5K then taking it out shortly after and then in November putting in another 5K resulting in my having to pay interest on the 5K for two month.

I called the tax man and they suggested to fill out form T400A – “[you] can use this form to file an objection to a notice of assessment or a notice of determination issued under the Income Tax Act.”

Is this form right for this purpose ? Has anyone else had another way of trying to “prove that you made a reasonable mistake” ?



Tax Guy June 24, 2010 at 4:30 am

Hi Roman,
Many others made the same mistake. The penalty is what it is and sadly, you over contributed. The best you can do is object and ask for them to waive the penalty.

Alison September 12, 2010 at 9:04 pm

… some months later …

Has anyone had any response from the CRA to their letter of appeal? We had mailed ours the day before the June 25 announcement, hoping to catch the original deadline at the end of June, but it’s now September and we have not heard a thing.

Any news from anyone?


Kathy September 13, 2010 at 8:26 am

Yes, I heard about 3 weeks ago from CRA that they would waive the penalty for 2009 on my “supposed” overcontributions. I mailed my letter of appeal around the same time as you. My daughter also sent a letter of appeal a day after me but has not yet heard from the CRA. Hang tight – I’m sure most people will be off the hook for 2009.

Alison September 13, 2010 at 12:21 pm

Kathy, thanks for the good news!

Patricia Ignacz September 13, 2010 at 12:33 pm

I sent a letter of appeal when I sent my cheque in and never heard back so obtained a “request for relief form” and also attached a second letter of appeal about a month ago but have had no response.

Has anyone had their money refunded? I have copies of press releases saying “our government recognizes that there was some genuine confusion about the rules for the TFSA in the first year” and that they have taken the “decision to be as flexible as possible in cases where a genuine misunderstanding of the TFSA contribution rules occured”. It also stated that Canadians who have received a letter about their over-investment should respond with an explanation.

Hopefully, I’ll get a response soon.

Daniel Breton September 29, 2010 at 9:40 pm

Has anyone receive tax relief yet?
Please call that 800 number often to make them aware that we are on top of it.

German Trejo October 3, 2010 at 4:37 pm

On June 29 2010, I submitted my payment for 5400.00 for overcontribution to my TFSA, also as it was sugested by local CRA, with my payment I included a Request for Taxpayer relief(form RC4288 E), money was drawn from my account two weeks later. I have not heard anything up to now, Do I have to do something else at this time?

German Trejo

Daniel Breton October 4, 2010 at 8:28 pm

Just keep calling the 800 number at the CRA. Keep on putting pressure.

Dan October 29, 2010 at 8:50 am

Hi everyone

This week I did receive a letter stating that the government will waive my penalty and refund me. So keep calling the c.r.a every week to stay on top of it

geo December 7, 2010 at 12:26 pm

hello, i did pay a penalty and sent a letter to the CRA. i know some have heard back or gotten their money back. Does any one know the site to get the letter so i can send another one?

judi brown December 7, 2010 at 3:13 pm

Yes ask your MP for help. My MP in Sarnia helped me get the letter and i filled it out now i have been expecting my penalty mney back any day now. I also asked Tony Clement to help and he has been great. He use to be my member of Parliament before we moved so he is always there whenever i have needed help in some way or another. Judi

Tax Guy March 2, 2011 at 10:03 pm

A T4 is issued by your employer and tells you what your employment income was.

If your are referring to the T5, this would be issued for a taxable account and not tax free savings account.

Tax Guy April 15, 2012 at 11:46 am

Take a read of this article on “>TFSA Contributions.

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