1%/month, zero buffer — common mistakes and step-by-step fix
Excess TFSA Contribution (0 buffer — all excess is penalized):
Unlike the RRSP, the TFSA has zero tolerance for over-contributions. There is no $2,000 lifetime buffer. Every dollar contributed above your available room triggers a 1% per month penalty tax on the highest excess amount during that month.
The penalty is reported and paid using Form RC243 (TFSA Return). You must file this return and pay any balance owing by June 30 of the year following the calendar year of the over-contribution.
The single most common cause of TFSA over-contributions is withdrawing and re-contributing in the same calendar year. Here is how it happens:
1. Contributing while a non-resident: TFSA room does not accumulate during years of non-residency. If you lived abroad for several years, your room may be far less than you assumed based on the annual limits table.
2. Multiple TFSA accounts at different institutions: Your total contribution limit applies across ALL your TFSAs combined. Contributing the full annual limit to each of two accounts doubles your contribution — and over-contributes by the full amount at the second institution.
3. Relying on stale CRA data: CRA My Account can lag by several months, especially in January–March. Institutions report TFSA transactions annually, not in real time. If you contributed in December 2025, it may not show in CRA's system until mid-2026. Always track your own contributions.
4. In-kind transfers valued incorrectly: If you transfer investments in-kind to your TFSA, they are valued at fair market value on the date of transfer. If you overestimate FMV or use an incorrect date, you may inadvertently over-contribute.
As soon as you realize you have over-contributed, withdraw the excess amount from your TFSA. This stops the monthly 1% penalty from accumulating further. Unlike RRSP over-contributions, TFSA withdrawals are not subject to withholding tax and are not added to your income.
Complete and file the TFSA Return (RC243) by June 30 of the following year. Calculate the 1% penalty for each month the excess was present using the RC243-SCH-A schedule.
Under the CRA's taxpayer relief provisions, you can request a waiver of TFSA penalty tax if the over-contribution occurred due to a reasonable error and you corrected it promptly. File a detailed letter with your RC243 explaining the circumstances. The CRA grants waivers regularly for first-time, unintentional over-contributions.
| Feature | TFSA | RRSP |
|---|---|---|
| Buffer before penalty | $0 | $2,000 lifetime |
| Penalty rate | 1%/month | 1%/month |
| Filing form | RC243 | T1-OVP |
| Filing deadline | June 30 (following year) | March 31 (following year) |
| Withdrawal taxable? | No | Yes (withholding applies) |
| Most common cause | Same-year re-contribution | Pension adjustment surprise |
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