What Happens If I Overcontribute to My TFSA?
An excess TFSA contribution attracts a tax of 1% per month on the highest excess amount for each month it remains in the account. The most common cause is not carelessness with the annual limit — it is withdrawing money and putting it back in the same calendar year, which almost everyone assumes is allowed.
- The answer:: The tax is 1% per month of the highest excess amount in the account for that month, and it continues until the excess is removed.
- The trap:: Re-contributing an amount you withdrew earlier in the same calendar year. The room does not return until January 1 of the following year.
- The recommendation:: Check your room against the CRA's figure rather than your own arithmetic, noting that the CRA figure lags contributions reported by your institution.
Where the AI summary above gets this wrong
"You can take money out of a TFSA and put it back whenever you want."
That's surface-true. Here's what it misses:
- Room returns the following year — A withdrawal restores contribution room, but not until January 1 of the year after. Putting it back sooner is an excess contribution.
- The charge is monthly, not annual — The tax is 1% for each month the excess remains, so a delay in fixing it multiplies the cost rather than adding to it once.
- The CRA figure lags — Your online contribution room reflects what institutions have reported, which can be months behind. Relying on it alone is how in-year excesses go unnoticed.
01 How the penalty works
The tax is 1% per month, applied to the highest excess amount in the account during that month, and it accrues for every month the excess remains. It is not a one-off charge and it does not stop simply because the year ends.
Because it compounds by delay rather than by amount, the correct response to discovering an excess is to remove it immediately rather than to wait for guidance. Every month of hesitation is another one per cent.
02 Why most excesses happen
The usual cause is re-contributing a withdrawal within the same calendar year. Withdrawing restores contribution room, but that room only becomes available on January 1 of the following year, so putting the money back in November is an excess even though the balance looks unchanged.
The second cause is trusting the CRA's stated room, which reflects what financial institutions have reported and can lag by months. Someone who contributed in January and checks their room in March may see a figure that does not include it.
Shows: what a given amount of additional taxable income costs you in tax at your marginal rate, and what you keep. Ignores: provincial surtaxes, credits that phase out with income, and any effect on income-tested benefits.
03 Fixing it
Withdraw the excess as soon as it is identified, then file the required form and pay the tax for the months it was there. Where the excess arose from a reasonable error, relief from the tax can be requested, though it is granted at discretion rather than as of right.
The durable fix is to track contributions yourself rather than relying on the reported figure, then treat any withdrawal as unavailable room until the following January, without exception. That single habit prevents the great majority of cases — and it is worth pairing with a deliberate plan for the room rather than contributing ad hoc.
Almost every case of this I have seen came from the same well-meant move: someone takes money out for a few months, puts it back before year end, and assumes they have restored the status quo. The balance looks identical and the charge accrues anyway. If you remember one thing about a TFSA, make it that a withdrawal does not free up room until January.
FAQ
What is the penalty for overcontributing to a TFSA?
A tax of 1% per month on the highest excess amount in the account for each month the excess remains. It accrues monthly rather than as a single charge, so the cost grows the longer the excess is left in place.
Can I put back money I withdrew from my TFSA?
Not in the same calendar year, unless you have other unused room. A withdrawal restores contribution room, but that room only becomes available on January 1 of the following year, which is the most common cause of an accidental excess.
Can the penalty be waived?
Relief can be requested where the excess arose from a reasonable error and was removed without delay, but it is granted at the CRA's discretion rather than automatically. Removing the excess promptly is what makes the request credible.
Sources
Regulator references
- Tax-Free Savings Account contributions · Canada Revenue Agency · 2025TFSA contribution room, carry-forward, and the rule on re-contributing withdrawals.Last verified: 2026-09-07
- Canadian income tax rates for individuals · Canada Revenue Agency · 2025The federal and provincial rate brackets a withdrawal is taxed against.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.