By The $7,000 TFSA Mistake: Over-Contribution Penalties Explained (1% per Month)
For 2026, every eligible Canadian got exactly $7,000 of new TFSA room. Put in even $1 more than your personal room allows and the Canada Revenue Agency charges a tax of 1% per month on the excess — $70 a month on a $7,000 over-contribution, $840 if it sits there for a full year. It is one of the most common registered-account mistakes in Canada, it is almost always accidental, and the fix is fast if you act as soon as you spot it.
How the 1% per month penalty actually works
The tax is 1% of the highest excess amount in the month, charged for each month the excess remains in your TFSA. Three details make it harsher than it first sounds:
- There is no buffer. RRSPs forgive the first $2,000 of over-contribution. TFSAs forgive nothing — the tax starts at the first excess dollar.
- One day counts as the month. Because the tax uses the highest excess in the month, being over for a single day in a month can set that month’s tax on the full amount.
- It repeats until you act. The tax runs every month until the excess is withdrawn or absorbed by new room on January 1 — it does not stop on its own when you stop contributing.
| Excess amount | Tax per month (1%) | Cost if left 6 months | Cost if left 12 months |
|---|---|---|---|
| $1,000 | $10 | $60 | $120 |
| $2,000 | $20 | $120 | $240 |
| $5,000 | $50 | $300 | $600 |
| $7,000 | $70 | $420 | $840 |
The CRA’s own example makes the same point at a smaller scale: a $2,000 excess that stays in the account from June to September costs $20 a month, $80 in total. Scale that to a full $7,000 mistake left for a year and the $840 tax is larger than the investment return most people were chasing when they over-contributed.
The three ways people over-contribute
1. Re-contributing a withdrawal in the same year
This is the classic $7,000 mistake. You withdraw $7,000 in March, then put $7,000 back in October because “it went out, so it can go back in.” It cannot — not yet. Withdrawals are added back to your room only on January 1 of the following year. If your room was fully used before the withdrawal, that October deposit is a $7,000 excess, taxed at $70 a month until January or until you withdraw it again. Our step-by-step guide to finding your exact TFSA room for 2026 walks through the calculation line by line.
2. Trusting the CRA My Account number in real time
The room figure in CRA My Account is only as current as the last reports your financial institutions sent in — and institutions report TFSA transactions with a lag, often months. If you contributed $7,000 in January and your My Account screen still shows last year’s room in February, contributing “what the screen says” creates an excess. Your own records are the source of truth; the CRA figure is a cross-check, not a live balance.
3. Counting the same room at two institutions
Your $7,000 of 2026 room is one pool, no matter how many TFSAs you hold. Contributing $7,000 at one bank and $7,000 at another in the same year — a mistake that gets easier as promotional accounts multiply — is a $7,000 over-contribution, not two legal deposits. The same trap applies to FHSA room, which is why our guide to opening an FHSA before December 31, 2026 stresses tracking room across every account you own.
How to fix an over-contribution, step by step
- Withdraw the excess today. Every month (or part-month at the highest-excess measure) adds another 1%. Withdrawing stops the clock from growing; it does not erase tax already triggered for the months the excess was there.
- Do not re-contribute that money this year unless you are certain new room covers it. The withdrawn excess only becomes safe to put back when fresh room appears — normally the new $7,000 annual amount (or its successor) on January 1.
- File Form RC243. If tax is owing, you must file the TFSA Return (Form RC243, with Schedule A for the excess calculation) and pay by June 30 of the year after the over-contribution. The CRA may send you a proposed assessment first — file the return either way.
- If it was an honest mistake, ask for relief in writing. The CRA has discretion to waive or cancel the tax where the excess arose from a reasonable error and was withdrawn promptly. Explain what happened, show when you withdrew, and keep copies — relief is discretionary, never automatic.
- Park the withdrawn cash somewhere sensible meanwhile. A non-registered high-interest savings account keeps the money earning interest (taxable, but legal) until January 1, when it can go back into the TFSA properly.
Does investment growth inside the TFSA create an excess?
No — and this distinction trips people up. Your contribution room limits what you put in, not what the account grows to. If you contribute exactly your room and the investments double, you have not over-contributed, and the growth is never taxed. The excess is calculated purely on contributions against room: total contributions minus your available room. The flip side matters just as much: if investments fall after you contribute, the lost value does not restore any room. A $7,000 contribution that drops to $5,000 has still used $7,000 of room, and withdrawing the remaining $5,000 only adds $5,000 back to your room next January 1. That asymmetry is one more reason to keep an accurate contribution ledger instead of judging your room by the account balance on a screen — the balance reflects the market, while your room reflects your contribution history, and the CRA taxes only the second one.
Prevention: a 10-minute system that works
- Keep one running total. A single note — contributions in, withdrawals out, by year — beats every app and portal, because it is never months behind.
- Treat December withdrawals carefully. Money taken out late in the year can go back in January, when the withdrawal is added to room and the new annual amount lands at the same time.
- Consolidate TFSAs. Fewer accounts means fewer chances to double-count room. Transfers done directly between institutions do not use room; withdrawals and re-deposits do.
- Model big moves before you make them. Run the numbers first with the free calculators at MyFinancesGuru Tools, then check your own contribution ledger before you press submit.
Common mistakes
- Waiting for January to fix it. New room on January 1 can absorb an excess and stop future tax, but every month before then still costs 1% — withdrawing in October is cheaper than absorbing in January.
- Assuming the CRA will not notice. Institutions report every TFSA contribution. The tax is assessed from those reports whether or not you file anything.
- Withdrawing the “profits” instead of the excess. The excess is a dollar amount of contributions over room, not a specific investment. Withdraw at least the full excess amount in cash value.
- Becoming a non-resident and continuing to contribute. Contributions made while you are a non-resident of Canada attract a separate 1% per month tax until withdrawn or until you are resident again.
Frequently asked questions
How much is the TFSA over-contribution penalty in 2026?
1% per month on the highest excess amount in the month. A $7,000 excess — the full 2026 annual limit — costs $70 a month, $420 over six months and $840 over a full year, until the excess is withdrawn or absorbed by new room.
Is there any grace amount for TFSA over-contributions?
No. Unlike RRSPs, which have a $2,000 over-contribution buffer, TFSAs have no buffer. The 1% monthly tax applies from the first dollar over your room.
What is my TFSA room for 2026?
Your personal room is the $7,000 limit for 2026, plus unused room carried forward from earlier years, plus withdrawals you made in 2025 or earlier (added back each January 1). Someone eligible since 2009 who has never contributed has $109,000 of cumulative room in 2026. Your own contribution records are more current than the CRA My Account figure.
How do I report and pay the penalty?
File Form RC243, the TFSA Return (with Schedule A), and pay any tax owing by June 30 of the following year. If the excess came from a reasonable error and you withdrew it promptly, you can also ask the CRA in writing to waive or cancel the tax.
If I withdraw the excess right away, do I still owe anything?
Possibly a small amount. Tax is based on the highest excess in each month, so the month in which the over-contribution happened can still attract 1% even if you fix it quickly. Withdrawing immediately stops every later month’s tax, which is where the real money is saved.
Can I put the money back in January?
Yes, if your room covers it. On January 1 you get the new year’s dollar limit and any 2026 withdrawals are added back to your room. Check your ledger first — January is also when last year’s same-year re-contribution mistakes get repeated.
The bottom line: the TFSA penalty is simple and unforgiving — 1% per month on the excess, no buffer, starting at the first dollar. A $7,000 excess costs $70 a month. If you have over-contributed, withdraw the excess today, file Form RC243 by June 30 of next year, and keep your own running total from now on: your records, not a lagging portal number, are what keep you on the right side of your room.
