Fixing a TFSA over-contribution before year-end: the 1%-a-month clock
A TFSA over-contribution is the rare tax mistake with a meter running: the CRA charges 1 percent per month on the highest excess amount in the account, for every month the excess stays there — and a month counts in full even if the money was over the limit for a single day. A $5,000 excess left for six months costs $300 in penalty tax, plus a special return to file. Discovered in the fall, this is very fixable, and the year-end timing actually helps you: withdrawing the excess now stops the clock, and January's new annual room is close enough to plan around. This guide gives the fix in order, the traps that create most over-contributions, and the relief request worth making when the error was genuine.
How the penalty actually works
Three mechanics matter. First, the rate: 1 percent per month, applied to the highest excess amount in that month — so a partial withdrawal mid-month does not reduce that month's charge; it reduces the next month's, because the excess going forward is smaller. Second, the calendar: any part of a month counts as the whole month, which is why "withdraw this month" and "withdraw next month" differ by a full 1 percent of the excess. Third, the earnings problem: returns earned on a deliberate over-contribution can attract a separate 100 percent advantage tax — the CRA takes essentially all the gain — which is why "leave it in and out-earn the penalty" fails as a strategy even before the monthly charges. Worked examples make the clock concrete: $3,000 over from early March, withdrawn May 20, is three months of excess — $90. The same inattention at $8,000 from February to mid-December is eleven months — $880. The difference between those two outcomes is nothing but speed.
| Step | Action | Deadline logic |
|---|---|---|
| 1 | Stop all contributions and cancel automatic deposits to every TFSA you hold | Immediately — an auto-deposit can recreate the excess while you are fixing it |
| 2 | Calculate the true excess from your own records across all institutions | CRA My Account room figures lag current-year activity; reconcile against provider records before acting on a number |
| 3 | Withdraw the full excess | Inside the current calendar month saves a full month of tax; the withdrawal itself is tax-free and is not income |
| 4 | File Form RC243 (TFSA Return) with Schedule A for the year of the excess | Due June 30 of the following year; late filing adds its own interest and penalties |
| 5 | Pay the calculated tax, and consider a relief request | Pay first even if you appeal — if the CRA grants relief, amounts paid are refunded |
The trap that creates most over-contributions
The classic accident is the withdraw-and-redeposit mistake. TFSA withdrawals are flexible and tax-free, and the amount withdrawn is added back to your contribution room — but only on January 1 of the following year, never in the same year. Max out the account, withdraw $10,000 in March for an emergency, then "put it back" in November, and you have created a $10,000 excess for November and December, because the room from the March withdrawal does not exist again until January. Multiple accounts run a close second: room is personal and shared across every TFSA you hold at every institution, and no single provider can see the others. And the third trap is trusting the headline room figure: the CRA's displayed number reflects what institutions have reported, which can lag the current year, so a large contribution deserves a check against your own transaction records or a call for a TFSA transaction summary.
The relief request: worth making, honestly framed
The CRA has discretion to waive the tax where the excess arose from a reasonable error and was removed without delay once discovered. The request — made in writing, with taxpayer-relief provisions referenced in CRA guidance — should do three things: explain the error plainly and specifically (a transfer miscoded as a withdrawal-and-redeposit, a duplicated contribution, a room figure relied on in good faith), show the timeline proving you acted immediately on discovery, and attach the withdrawal record. First occurrences with a clean history and a fast fix are the profile relief exists for. What weakens a request: a pattern of repeated excesses, a long gap between discovery and withdrawal, or an explanation that amounts to not knowing the rules existed. File the return and pay the tax on schedule regardless; relief is a refund decision made afterward, not a reason to miss the June 30 filing deadline.
Year-end specifics
Discovering the excess in the fourth quarter has one more wrinkle worth handling deliberately. New annual TFSA room arrives January 1, and an excess smaller than the new room will be absorbed by it — the penalty stops once the excess no longer exceeds your room. That tempts a wait-until-January approach. Run the numbers before choosing it: each month of waiting costs 1 percent of the excess, guaranteed, while the January absorption is free of further charges once it happens. For a small excess discovered in late December, the wait can be rational. For anything discovered in October or November, or anything large, withdrawing remains the cheaper and cleaner fix — and it restores your ability to contribute normally in the new year without a penalty tail. Either way, do not make a December contribution "to use the room" while an excess is unresolved; that is how a $2,000 problem becomes a $7,000 one. What success looks like: excess withdrawn and documented, RC243 filed by June 30, a relief letter sent if the error was genuine, and a one-page personal TFSA ledger — every contribution and withdrawal, by account, by date — that makes next year's room a number you computed rather than a number you hoped.
Keep a personal TFSA ledger from now on
Every durable fix for this problem ends in the same unglamorous artifact: a one-page ledger of your own. Record every contribution and every withdrawal, by date and by institution, in one place you control — a notebook page or a single spreadsheet — and reconcile it each January against the new annual room and the CRA's updated figure before contributing anything. The ledger takes two minutes per transaction and converts next year's room from a number reported by systems that lag and cannot see each other into a number you computed yourself. Most over-contributions are not carelessness; they are the predictable result of three institutions, one lagging government display and a rule that restores withdrawn room only in the following year. A personal ledger is the only tool that sees the whole picture, because you are the only participant who does.
FAQ
Is there a small buffer, like the RRSP's $2,000 grace amount? No. Unlike the RRSP, the TFSA has no penalty-free buffer against errors; the 1 percent monthly tax applies from the first dollar of excess.
Will the CRA find it if I say nothing? Institutions report TFSA activity to the CRA, which does identify excesses and issues letters and proposed returns. Self-correcting first is cheaper in tax and far better positioned for relief than waiting to be found.
I withdrew the excess — can I re-contribute it right away? Only up to your actual available room. The amount you withdrew to cure the excess does not create same-year room; re-contributing beyond real room recreates the excess you just fixed.
General information only, not tax or financial advice. TFSA penalty mechanics, forms and deadlines are summarized from CRA-related sources checked 2026-10-19; confirm your figures with the CRA or a tax professional before filing.
Next, see RRSP and TFSA year-end timing or planning next year's money calendar.