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What to do about TFSA Over-Contributions

Written by Jessica Steer
TFSAs, also known as tax free savings accounts, are a great way to save money. You can earn some interest on your money while avoiding paying any taxes on the money. Unlike an RRSP account or even mutual funds, with a TFSA, you can take money out of your account whenever you want to. That being said, there is a limit to how much you can put into your TFSA. That does include the money that you take out as well. Once you have reached that limit, then you start having to pay a penalty.
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    As mentioned above, a TFSA is a tax free savings account that you can open through a financial institution. You do not need to be earning income in order to open a TFSA and no one else will be able to access it because you are the account holder. Only you will be able to dictate any deposits or withdrawals. You can access your TFSA through a branch or your financial institutions online banking. It is important you keep track of these withdrawals and deposits to verify that you don’t exceed your contribution limits.

    Contribution Limits

    Every year, the contribution limit on your TFSA changes. With these contribution limits you have a yearly limit but there is also a lifetime limit. This starts at the age of 18. For example, if you turned 18 in 2009 then your total lifetime contribution limit would be $88,000. Here is a breakdown of all of the contribution limits from 2009 on.

    From the years 2009 - 2012 the annual limit was $5000. In 2013 it went up to $5,500 and stayed that way for 2014. Then in 2015 it changed dramatically by increasing to $10,000. In 2016 it went back down to $5,500 and stayed at that amount for 2017 and 2018. In 2019 the limit then increased again to $6000. It stayed at $6000 for 2020, 2021 and 2022. It was then $600, in 2023. Now, in 2024, the annual TFSA contributions limit has increased again to $7000.

    So now that we know our annual and lifetimes how does it work? Do these amounts carry over? Well, yes they do. How much you can put into your TFSA without incurring a penalty depends on how much room you have used and when you opened the account. Let’s say you turned 18 in 2023 but are just opening your account now, that would mean your TFSA contribution room before a penalty is $88,000, also known as your unused TFSA contribution room. If you have been adding money to your TFSA every year since you turned 18 and always put in the maximum amount, then your 2023 limit is $6,500 since you have no unused contribution room to carry over.

    Withdrawing From Your TFSA

    Unlike some other savings accounts, TFSAs are not locked. You can withdraw money from them whenever you want. That being said, that money you have withdrawn is still included in your contribution limit. You can’t just replace it. That makes it extremely important that you pay attention to what you are depositing into and withdrawing from your account.

    This doesn’t mean that you can’t replace the money that you withdrew though, you just can’t do it in the same year it was withdrawn. It will be added to your contribution limit in the next year. Because of this, it only really affects you if you are nearing or have used your full TFSA contribution limits. If you are in this situation then replacing the money in the same year would cause you to have to pay a penalty.

    Contribution Limit Penalties

    TFSA over contribution does happen. If this does happen then the penalty on this is 1% of the highest excess TFSA amount. This penalty will happen every month until there is no more excess of the contribution limit.

    What do you do in this situation?

    If you have over contributed to your TFSA then you should be able to remove the excess contributions as soon as you can. This is the only way to fix TFSA over contributions as well as reduce the overall penalty amount that you have to pay for. You should also receive a letter notifying you of the overage in the account and what the proposed penalty will be. If you have already moved the money then there shouldn’t be anything else for you to do.

    This letter that you will receive comes in the Proposed TFSA return package. This package includes a letter with information regarding the TFSA and what steps you need to take. It will also include RC243-P form. This is the Proposed Tax-Free Savings Account TFSA Return form. This form will show the penalty amount for the overage. You can then either agree or disagree with this amount.

    If you agree, then you can sign the form and send it back dated with your SIN number included. You can then make the penalty payments. If you don’t agree with the assessment then you can send a letter to the CRA (Canada Revenue Agency) explaining the situation including proof that the money was moved.

    Cancellation of TFSA Taxes

    Once the CRA has reviewed your situation, they are able to withdraw or cancel any penalty charges. Some reasons that they would do this are:

    • If the overage was considered to be reasonable error
    • If the transactions that occurred to inflict the tax also inflicted other taxes under the Income Tax Act
    • The extent of the payments made from the TFSA

    The only way they will waive or cancel the tax, though, is if you send them a letter requesting they do so. As long as they agree with your reasoning then they will waive the tax.

    Penalty Waiver Letter

    This waiver letter that the CRA requests if you don’t agree with their assessment, you should mention the reason for the overage in detail and also include proof that the overage was corrected. Even though you may not feel you need to pay the tax, there will be extra penalties for not paying it and it will take up to 12 weeks for them to process the request.

    It is recommended that you pay the tax as well as complete the TFSA excess amount form. Once your request has been processed you will be notified if you will be getting a refund or not.

    That being said, some people do choose to wait to pay but it is best to speak with the CRA or someone who can help you through the process to determine the best course of action.


    Overall, when it comes to TFSAs, they are a fantastic way to save money as long as you avoid over-contribution. In order to do this, the easiest way is to keep track of what your deposits and withdrawals are. This will help you to prevent any penalties and avoid having to pay the penalty or file a dispute. If you do have to do either of these things then it is best to take care of them as soon as possible. Don’t forget that your withdrawal amounts don’t get added back to your contribution limit until the following year, so putting the money back right away may not be in your best interest if you are close to reaching your total contribution limit. As long as you keep these things in mind, a TFSA can be a great tool to help you meet your financial goals.

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