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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The Rat February 18, 2010 at 5:01 pm

I almost over-contributed on my TFSA in 2009 and I know I would hate having to do out another form for the sake of over contributing accidentally!

It would be nice to see the Canadian Government increase the amount to which investors can poke away in their TFSAs on an annual basis.

Nice post.

Tax Guy February 19, 2010 at 8:59 am

@The Rate: I guess it depends on how you look at it. Last year we were given $5,000 and this year another $5,000. That’s $10,000!

The Rat February 19, 2010 at 10:44 am

You’re right. My wife and I both contributed in 2009 and that’s 10k invested, and another 10k available for 2010. I really like the TFSA program for Canadians.

Small Fish March 1, 2010 at 11:45 pm

Hello. I opened a TFSA account in Jun. 2009. Since Sept. 2009, I have overcontributed($7677) and in Dec. 2009 it reached $11565…I withdrawed some of them during this period also. I realised that I made a big mistake after I read your blog. How can I ask CRA to waive this? I am not familiar with this policy and I am leaving Canada this summer as my visiting visa will be expired then. Could you please give me some advices? Thanks very much.

Tax Guy March 2, 2010 at 9:02 am

I do want to clarify the meaning of contribution and over contribution. In 2009, the TFSA contribution limit was $5,000. If you deposited more than $5,000 the excess is an over contribution. For example, if you deposited $8,000 to your TFSA, you have over contributed by $3,000. The penalty tax will be based on the $3,000.

In 2010, the over contribution would be gone but you would only have $2,000 of TFSA room for 2010.

If you deposited $5,000 and your investments have grown to $8,000 there is no over contribution.

You will need to withdraw the amount of the over contribution and then file form RC243 to calculate the penalty tax.

The Rat March 2, 2010 at 9:16 am

Thanks for clearing that up!

Small Fish March 4, 2010 at 12:31 am

In form RC243, “Before completing this form, please read the important information and definitions on the last page. Complete all parts of Section 1 that apply to you as well as Section 2. Report all amounts in Canadian dollars. In all cases, you must submit the documentation to support all transactions.”
Do I have to file all the bank statements with form RC243? Or just attach SCHEDULE A? Thanks.

Tax Guy March 4, 2010 at 9:28 am

@Small Fish: Only file the forms with Schedule A.

Alice March 16, 2010 at 6:03 pm

is the 1% penalty charged at the end of each month? so I just realized I have an over contribution, so I withdrew the over contributed amount a week later. Do I still get 1% penalty? thanks

Tax Guy March 17, 2010 at 10:59 am

Hi Alice:
The penalty is calculated based on the highest amount of over contribution in a calendar month. You then must file the TFSA return for the calendar year.

Ganny June 1, 2010 at 2:27 pm

I have overcontributed to TFSA account without knowing the rules….how do i ask CRA for waiving the penalty tax….is there a direct contact tel. # or an CRA office i can visit a request waiver of the penalty

Tax Guy June 3, 2010 at 9:13 am

Hello Ganny,
You can call the CRA at 1-800-959-8281 and explain your situation.

Brad June 8, 2010 at 3:10 pm

Okay, I apparently overcontributed by $68,863

Here’s what happened: On a personal savings of approx. $10,000, I was moving the money back and forth between two TFSA accounts at different banks, to get the best interest rate, unaware of these TFSA rules involving this 1% tax.

So, I get a letter from Revenue Canada saying I owe $688.83, which is the 1% tax on my overcontributions.

I am so not impressed, and will fight this.

I only made under $100 interest from all this (inluding my intial $5000), and now I may be penalized with $688.83?

I am hoping the CRA will waive this ridiculous penalty fee. Some tax free savings account, huh?

Tax Guy June 8, 2010 at 5:24 pm


The CRA may be lenient. I answered a direct email today from someone who over contributed and got a bill for $2500!

The TFSA does not work like a bank account. You can only deposit to your annual limit. You can’t withdraw and then re deposit in the same year.

Call the CRA and tell them you made a mistake and would like apply to have the penalty waived.

Madison June 8, 2010 at 4:00 pm

I am also in the same boat as Ganny. I over contributed to the TFSA account and was unaware of the limit and penalties. Are they able to waive the penalty tax while on the phone? or is there a form we must fill out? How likely are they going to waive the penalty tax if it was an honest mistake of not knowing the rules?

Tax Guy June 8, 2010 at 5:25 pm

Just call the CRA. They may waive the penalty.

Madison June 8, 2010 at 6:18 pm

Ok, I just called them and met a lady that said she could not do anything about it and I would still need to pay the fee. I have no job and it would be near impossible to come up with the amount they are asking in such a short period of time. I would absolutely hate to have to pay $1200 for an honest mistake especially when I was misinformed. If I don’t pay this fee by the end of this month there will be an additional interest charge. Should I give them another call? Because like Brad, think this fee is ridiculous.. I would not want to gain a measly $100 for a penalty charge of $1200..

Tax Guy June 9, 2010 at 7:56 am

Hello Madison,
Take a look at the CRA’s tax Payer Relief Provisions and see if you can make a formal application. You should read through the document IC07-1 Taxpayer Relief Provisions and then determine if you can make an application using form RC4288.

MS June 8, 2010 at 4:54 pm

I had an existing TFSA with one institution and contributes the max $5000 for that year. Later in the year I opened another TFSA account with onother institution and decided to put all $5000 to that account. Without realizing then that I can make a qualifying transfer between the two, I instead withdrew the $5000 and deposited it to the other. Big mistake! Now I owe $150 in penalty tax (1% of 5000 in 3 months). Can I argue that transferring the fund was my intention and consider this an honest mistake and have CRA waive the fee?

Tax Guy June 9, 2010 at 7:50 am

Hello MS,
You can ask the CRA if they will waive the fee. You need to explain the situation and how you made the mistake as well as what steps you have taken to fix the error. The CRA has the power to waive penalties.

Brad June 8, 2010 at 6:38 pm

Everyone should complain. The squeaky wheel gets the oil.
If I would of known I’d get a bill for $688.83, on a capital gains from interest of actually under $90. It’s not as if I kept the money in and brought more money into the picture, I was transferring the same money back and forth to get the best rates. I learned of all this today, and immediately moved all my money from one of the TFSA into a regular account (will be fighting that next year if not this year, as well). I would much rather pay 10% on $100 yearly than 1% on $70,000 monthly. This makes no sense to me. They should be factoring in the interest accrued from these dealings.

Tax Guy June 9, 2010 at 8:01 am

Hello Brad,

This may sound a little crass and uncaring, but “ignorance of the law is no excuse!” However, is can be a mitigating factor that may be used as a partial defence. An error due to the result of ignorance or mistake may help your particular case.

I would suggest you make an application under the Taxpayer Relief Provisions. Although the relief provisions are normally reserved for extenuating circumstances and are not normally applied in cases such as this, it is certainly worth a try.

You should also consider contacting the Minister of National Revenue’s office directly and state your case. Based on the numerous complaints and questions on this topic, the government should know and be encouraged to be a little more lenient.

Jacob June 8, 2010 at 8:32 pm

Same boat as you guys. I got a bill for $1200 today. When I got the account last January with the 2.5% introductory rate I couldn’t resist :). I assumed I would still pay tax on the interest accrued on the money over $5000. argh…. I finally did a little digging around in November and realized what was going on and immediatly withdrew enough to make it right. sigh…..

So frustrating…

Do not accept no for an answer when you phone them.
Ask to talk to the persons superviser. And if that person can’t help you ask to talk to their superviser. and so on and so on. They have us by the balls and they know it so they won’t just hand it back without a fight.

Contact your local MLA if you don’t get satifaction from CRA.

Maybe getting the media involved will help.

Maybe the banks should share a little responsibility. I applied online for my account and had it said in big red letters in the middle of the screen before I agreed to open my account that I would be subject to a 1% penalty by the CRA if overcontributed, Duh I wouldn’t have done it.

Tax Guy June 9, 2010 at 8:10 am

I mentioned to another visitor that a call or letter to the Minister of National Revenue may demonstrate mass confusion about the TFSA. He may direct the CRA to be a little more forgiving.

JoJo June 8, 2010 at 10:04 pm

same here….i just got my letter today….

Chris June 8, 2010 at 10:26 pm

So, I get a letter saying my over contribution was over $40,000 and I owe them more than $400 in a penalty!?!? What is going on here? The limit was $5000 and the most my account was over was $2500 and that was for one month! I think I earned something like 10 dollars in interest with this scam account, and I’m supposed to pay a $400 fine for being over the limit by $2500 for one month!? My money is SO out of this government scam account.

Tax Guy June 9, 2010 at 8:12 am

Hello Chris,

Did you happen to deposit $5,000 to a TFSA, withdraw it and deposit it again? Repeating this process seven times would result in a $40k over-contribution. Like the others, you might want to call the CRA, your MP, and the Minister of National Revenue and even the Finance Minister to complain.

Laura June 9, 2010 at 8:28 am

Tax guy,

The $40K seems to be the $5000 x 8 months. At least that’s what happened to me.

Alison June 8, 2010 at 10:50 pm

I also was misled by the initial publicity about the TFSA accounts. I interpreted the contribution room to be a maximum amount/limit of $5000 that could be held at any one time – not the maximum “contributions” per year – very confusing when you’re told that withdrawals are without penalty and that it can be used for “general saving”. I have received my penalty bill for $282 today – and am sure that my husband’s bill will be arriving tomorrow. I will definitely be phoning the CRA to explain and find out if they will waive it. I hope enough other people complain!

Elise Roberts June 17, 2010 at 9:13 pm

I had a $5000 TFSA in one bank, when I moved to another bank due to getting a mortgage, I moved my $5000 TFSA to that bank. Nobody at any bank told me this would mean a contribution of $5000 over the limit, In other words I am paying interest on $10,000 even though it was never more than $5000 that I had. I am outraged. The TFSA was advertised through the media by governments and financial institutions, but they do not know the rules nor do they explain them. I am going to complain to the Minister of National Revenue and the Finance Minister. I wrote an appeal to Revenue Canada today. I think this TFSA is going to make the cash grabbing government earn more money than if we had our money in a regular account. Also in the original account, I took money out and put it back in, as we do with savings accounts. Putting the money back in, meant I was going over the limit, because they base it on the original amount. Ridiculous!!!!

Ben June 8, 2010 at 11:35 pm

I got my letter today. I get into same situation now. I withdrawed $3000, then next month I saved it back. so I have to pay a $120 fine.

Tax Guy June 9, 2010 at 8:14 am

It’s not a “fine” per se. It’s a penalty tax. I know it’s semantics, but a fine is a little different.

Emily June 8, 2010 at 11:57 pm

My husband and I have $550 penalty in total. I almost had a heart attack last night when I opened the letter. Has any one successfully have CRA waived the crazy fees? What to do ?
Please help. Thanks.

GM June 9, 2010 at 12:23 am

I got my bill yesterday for $263, it will be more for the upcoming tax year – probably about $500. I rushed to the bank today to take out all of my TFSA contributions so I wont be penalized in upcoming future months. I called the CRA they said to mail in a letter to appeal. The banks took no responsibility.

I was first suckered in to the account online. It seemed like any other savings accounts I used. Where you could deposit and withdraw money. I made sure the amount never got over $5000. I still got charged because they don’t take withdrawals into account! Sheesh.. I wish I had known this. My money was sitting in a savings account. I made a few dollars on it, and end up paying a few hundred. I hope my appeal works, this is very upsetting

Madison June 9, 2010 at 12:53 am

Did they tell you that they will waive your fees on the phone? Or did they just say that you have the option of submitting an appeal and hope it will then be waived? The form asks us to fill out something if the amount of tax penalty is wrong.. is this the appeal you are referring to? This is my first time encountering something like this.. I’m still a student without a job and they are asking me for $1200 by the end of this month, if not they will add on interest. I think this is downright wrong. It’s as if they’re stealing candy from a baby… I have no idea what to do.

Tax Guy June 9, 2010 at 8:15 am

Hi Emily,
You just need to try!

Elise Roberts June 17, 2010 at 9:16 pm

I have just submitted a reply. I bet there are millions of Canadians who have made the same mistake. I think everyone who gets a letter should file a petition. Anyone interested in starting one and protesting and fighting this? It is such an outrageous theft of our money.

Laura June 9, 2010 at 8:20 am

Gack!!! I got my letter yesterday and I owe $400 because I unwittingly transferred the $5000 to another account in May. What the hell? And what is up with multiplying the $5000 by the number of months it sat there. I only made $60 in interest in 2009. And I suppose I’m over contributed in 2010 because I added another $5000?

Can we make an organized appeal to the Minister of Finance? I’m sure (I hope anyway) that this was not the intent when they set this up.

Where can we go with this?

Small Fish June 9, 2010 at 9:22 am

I paid the penalty tax ($125) in March as I don’t want to pay any other penalties or interests again. Also, I wrote a letter to CRA for waiving my penalty tax but they refused. The appeal took more than 2 months. I sent the appeal letter in early March and received a confirmation letter from CRA in middle April. The final result came in late May.
Thanks ‘Tax Guy’ for the help before.

Maybe letting the media involved is a way…

Jordan B June 9, 2010 at 7:31 pm

Small Fish —

I am contemplating whether I want to pay the tax and file an appeal, or file the appeal and risk getting charged more penalties/interest after June 30th deadline.

I feel that if I pay it, the CRA will have no reason to waive the fees, and would not want to refund the payment.

If I do not pay it, it would be eaiser for them to just waive the extra tax.

Decision, decisions.

Tax Guy June 9, 2010 at 9:27 am

I wrote an e-mail to the Minister of Finance and the Minister of National Revenue today. I also published a copy of the letter in today’s post.

Michael June 13, 2010 at 2:10 pm

Can someone please explain to me the steps they are taking and what forms need to be filled out to appeal this tax grab.
I’m not getting anywhere with the 2 fellows I talked to at the CRA. Something about an adminstrative relief letter.

Brad June 9, 2010 at 9:41 am

Thanks for the support Tax Guy!! I do think the banks should play a larger role in warning their clients of these penalties. I feel there was virtually no client protection in place. It’s kind of ironic that it’s called a TAX FREE SAVINGS ACCOUNT, and I am facing a PENALTY TAX.

Tax Guy June 9, 2010 at 10:57 pm

The banks and financial institutions need to take some responsibility as well. But clearly the TFSA was more confusing than most had thought and some forgiveness should be in order.

Call your MP!

Hong Zhang June 9, 2010 at 9:57 am

I’m kind of relieved that I’m not the only one that this has happened to.

I got my letter from CRA on Monday saying that I owe them nearly $600. I had no clue what they were talking about at first as I had about $4000 in my investment TFSA account and was careful not to go over the limit.

As it turns out, it was because I signed up for TFSA savings account through PC in Jan. 2009. In retrospect, I’m not even sure why I signed up for it because the interest I earn from savings isn’t really worth it. Anyway, because it was an online form, at some point my entire savings ($32,000+ as I was about to put a down payment on a house) was transferred into my “new” TFSA savings account. I didn’t find out until 2 days after, and I immediately transferred all the money out. I didn’t know about this 1 day rule and the rest is history after that. My bank failed to ever inform me that this might affect my TFSA contribution and try to make a correction. So I blindly left about $4000 worth of investments in another TFSA investment account which the CRA saw as over the limit contribution.

I don’t understand how this law is preventing true exploiters from using the TFSA to their advantage. And it’s only penalizing Canadians like us who had no such intentions. My savings account gave me close to nothing for interest I earned for the 3 days I had the money in my account. Yet I am being taxed $600 for it. None of it makes a lot of sense. Shouldn’t the tax be based on the INTEREST you earned based on your over-contribution?

I called my bank (PC) to try and get them to reverse the transactions and notify CRA. But they said it was too late to change anything. I called CRA yesterday to plead my case, but they only said they just follow the statements that my bank gives them. Are we the consumers really at fault here?

Tax Guy June 9, 2010 at 10:59 pm

Great Story. It shows how such a simple account can cause so many issues.

Hong Zhang June 10, 2010 at 10:24 am

Update – I called CRA back and explained my situation again. They told me to write them a letter back with all the details included and request “administrative relief”. Hopefully they will waive the tax. Thanks again for writing to Jim Flaherty on our behalf!

Kate June 12, 2010 at 1:52 pm

I have the same complaint with PC. I specifically called them to ask them to shut down my account so I could transfer it elsewhere, expecting to pay a fee as you do with RRSPs and was told that there is no fee to transfer money, there are no CRA penalties, that the account works just like any other savings account. I was encouraged to keep the account open, in fact, in case I wished to recontribute in the future. The rest, as they say, is history. I made this mistake in January which means I owe a clean $600 because I assumed a bank teller knew what they were talking about. Never again will I bank at PC.

MS June 9, 2010 at 11:45 am

To those of you who would like to contact the CRA Minister as a first step, here’s the link:

JoJo June 9, 2010 at 12:22 pm

Tax Guy and everyone,

Is there something we can do together to make a change?..since there are a lot of VICTIMS here…

Laura June 9, 2010 at 12:45 pm

I wrote to both Ministers this morning. You could try that. Drown them in complaints.

Tax Guy June 9, 2010 at 10:59 pm

Call your local MP as well. Ask them to bring it to the Minister of Finance.

JoJo June 9, 2010 at 1:56 pm

ya…let’s flood them with all our complaint letters….
I know I should read the terms and understand it…but…such a SCAM~~~

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