The TFSA overcontribution penalty has a reputation for being scarier than it is, and also for being easier to trigger than most people expect. Both are true. The tax itself is mechanical and, once you see it calculated, entirely predictable. But the account gives you no cushion, no warning from your bank, and no single statement that shows your real room when you hold accounts at more than one institution. That combination is why overcontributions happen to careful people.
This article calculates the penalty in real dollars, walks through the three ways it usually happens, and lays out the two-step fix, including how to ask the Canada Revenue Agency to cancel the tax. The authoritative source is the CRA page on tax payable on excess TFSA amounts; this is the plain-English version.
What counts as an overcontribution
An excess TFSA amount is any contribution above your available room at the moment you make it. Your available room in 2026 is this year's $7,000, plus all unused room carried forward since you turned 18 or since 2009, plus any withdrawals from previous years that were added back on January 1. Someone who was 18 in 2009 and never contributed has $109,000 of room in 2026.
The word "moment" matters. Room is checked at the time of each contribution, so the order of your deposits and withdrawals within a year can decide whether you are offside. And unlike the RRSP, there is no grace amount. The RRSP gives you a $2,000 lifetime buffer before any penalty; the TFSA taxes the first dollar over.
How the 1% is actually calculated
The tax is 1% per month of the highest excess amount in your TFSA during that month. Three features of that sentence do all the work:
- Highest, not average, not closing. If your excess peaked at $8,000 on the 3rd of the month and you withdrew half on the 20th, the month is taxed on $8,000.
- Per month, not per day. An excess present for a single day in a month is taxed for the whole month at 1%. There is no proration. This is why the timing of a corrective withdrawal matters: withdrawing on the last day of a month versus the first day of the next month is a full 1% difference.
- Until removed or absorbed. The tax runs every month the excess exists. It stops when you withdraw the excess, or when new room on the next January 1 rises to cover it.
So the monthly bill is simply 1% times the largest amount you were over, and the total is that repeated for each month until you fix it.
Three ways it usually happens
1. "I thought the limit was cumulative for everyone"
The most common beginner error. Someone opens their first TFSA in 2026, reads that the cumulative limit is $109,000, and contributes a large lump sum, without realizing that the $109,000 figure only applies to someone who was 18 or older in 2009. If you turned 18 in 2018, your cumulative room in 2026 is the sum of the annual limits from 2018 forward ($5,500 + $6,000 x4 + $6,500 + $7,000 x3), which is $57,000, not $109,000.
Contribute $80,000 against $57,000 of room and you have a $23,000 excess. At 1% per month that is $230 every month until you withdraw it. Notice it in the same month and pull it out, and you owe one month, $230. Notice it six months later and you owe $1,380 plus interest.
2. The recontribution timing trap
You are maxed, you withdraw during the year, and you put the money back before the next January 1. The withdrawal room does not return until the new year, so the redeposit is an excess. This one has its own article, because the fix is purely about timing: see TFSA recontribution after a withdrawal. The short version is that a withdrawal restores room on January 1 of the following year, never the same year.
3. The two-institution blind spot
You have a TFSA at your bank, maxed. You open a second TFSA at a broker for a better product and contribute $7,000, reasoning that $7,000 is this year's limit. But you already used this year's room at the bank. The $7,000 at the broker is a full excess: $70 per month. Neither institution can see the other, so neither warns you. The CRA sees both, because every institution files an annual TFSA record, and the excess surfaces in a notice the following year, by which point the penalty has quietly compounded for months.
This is the failure mode that a single-account view cannot prevent. The room is enforced across every TFSA you own, but no one statement shows the total.
A full worked example, month by month
Take the two-institution case and follow it through. You max your bank TFSA in January 2026, then contribute $7,000 to a new broker TFSA on February 10, 2026. Excess: $7,000.
- February through December is eleven months. The excess is present in each. 11 x $70 = $770.
- The TFSA return (Form RC243) for 2026 is due June 30, 2027.
- If you do nothing, on January 1, 2027 your new annual room ($7,000) absorbs the excess and the tax stops at the end of December 2026. Total: $770, and you have used up your entire 2027 room fixing a mistake.
- If instead you catch it and withdraw the $7,000 on, say, March 5, 2026, the excess is present in February and March only. 2 x $70 = $140, and your 2027 room stays free.
Same mistake, same dollars, a $630 difference decided entirely by how fast you noticed. Speed is the whole game.
The two-step fix
Step one: withdraw the excess immediately. The moment you realize you are over, take out the excess amount. This caps the penalty at the current month. Do not wait for a notice, do not wait for the year to end, and do not wait for the CRA to confirm your room. Every month you delay is another 1%.
Step two: file and, if it was a genuine error, ask for relief. You must file Form RC243, the TFSA return, for any year you had an excess, by June 30 of the following year, and pay the tax. But the CRA can cancel or waive the tax under the taxpayer-relief provisions (the request form is RC4288) when both of these are true:
- The overcontribution arose from a reasonable error. Misreading the cumulative limit, or a recontribution-timing mistake, generally qualifies. Deliberately parking extra money in the shelter does not.
- You removed the excess without delay once you knew.
Relief is discretionary. The CRA is not obligated to grant it, and the single strongest fact in your favour is that you withdrew the excess promptly. This is the practical reason step one comes first: it caps the bill and it is the evidence that earns the waiver. Write a short, factual letter, explain how the error happened, state the date you corrected it, and attach it to the RC243.
How to make sure it never happens
The penalty is entirely avoidable with one habit: know your real available room before every contribution, across all your accounts, not just the one in front of you.
- CRA My Account holds the official figure, but it lags, because institutions report contributions once a year. Use it as a checkpoint each spring, then track your own additions after that.
- Do the arithmetic across institutions, not per app. Your available room is one number that spans every TFSA you own. If you contribute at two places, add both against the single figure.
- Treat this year's withdrawals as unavailable until the next January 1.
If you hold everything in one place, your institution's dashboard is enough. If your TFSA is split across a bank and a broker, or two brokers, that is the exact case where the blind spot lives, and it is why the net-worth view of everything at once beats checking balances one at a time.
How Mozaic helps
I built the Mozaic TFSA tracker for the two-institution problem specifically. It reads your TFSA balances and transaction history from the major Canadian banks and brokerages (read-only, via SnapTrade and Plaid), combines them into one view in Canadian dollars, and puts your contributions and withdrawals on a single timeline so a second-account deposit shows up against your whole-picture room instead of hiding behind a statement that only sees itself.
It cannot move money or contribute on your behalf, so it can never cause an overcontribution; the connection is read-only. Data is stored in Google Cloud's Montréal region under PIPEDA and Quebec Law 25 (/security). It will not replace CRA My Account as the official record, but it closes the gap between the CRA's annual snapshot and what you have actually done since.
The bottom line
The TFSA overcontribution tax is 1% per month of your highest excess, with no buffer, running until you fix it. It is predictable, it is avoidable, and when it does happen by genuine mistake, it is often cancellable, provided you withdraw the excess the moment you notice. Know your room across every account, treat this year's withdrawals as off-limits until January, and the penalty stays a thing that happens to other people.
If you want to see your TFSA room tracked across every institution you use, the 14-day free trial needs no card. And if you are staring at a notice right now, the first move is not to panic, it is to withdraw the excess today and start the relief letter, because both of those get easier the sooner you act.