You Overcontributed to Your TFSA. Here's How to Fix It Before the CRA Penalty Hits.
A $3,000 deposit in April can cost you $360 by year-end if you didn't have the contribution room. The Canada Revenue Agency charges 1% monthly on the highest excess amount that sat in your TFSA during that month, 12% annualized, and the clock doesn't stop just because you didn't know.
The penalty math that compounds faster than your returns
The penalty applies even if the overcontribution was five dollars. If you put $7,500 into your TFSA in 2026 when you only had $5,000 of room, you owe 1% on $2,500 for every month the excess sits there. March through December is ten months. That's $250 in penalty tax on a mistake that might have earned you $180 in growth if you'd left it in a savings account at 3%.
The CRA doesn't send a warning. They send Form RC243-P, a proposed tax return, usually in late spring after your financial institution reports the prior year's transactions. By the time you get the letter, you've often already accrued three or four months of charges.
Withdraw the excess immediately, then file
Pull out the exact dollar amount of the overcontribution as soon as you identify it. Withdraw from the account with the lowest current value if you hold multiple TFSAs, because the penalty is based on the contribution amount, not the market value. If you contributed $5,000 and it dropped to $3,000, you still owe penalties on $5,000 until you withdraw at least that original sum.
The withdrawal doesn't erase prior months. If the excess existed at any point in May, you owe the 1% for May even if you pulled it out on May 15th.
After withdrawing, file Form RC243 (the self-filed version of the proposed return) with the CRA. Include a letter explaining the error and the date you corrected it. Do not wait for them to contact you. Taxpayers who self-report before receiving the RC243-P from the CRA have a meaningfully higher success rate on waiver requests.
Request a waiver under Section 207.06(1)
The CRA can cancel the penalty if you meet two conditions: the overcontribution was a "reasonable error" and you removed the excess "without delay" once you discovered it. Reasonable does not mean forgetfulness. It means a bank processing mistake, a misreported withdrawal on your CRA My Account summary, or a contribution made during a period when you were incapacitated and unable to track accounts.
"I thought I had room" is not reasonable. "I checked My Account and it showed $10,000 available, but that figure hadn't updated to reflect my February contribution" can be, if you include screenshots.
The waiver request goes on Form RC4288. Attach evidence: account statements showing the dates of contributions and withdrawals, printouts from My Account showing what your displayed room was on the day you contributed, records of any third-party advice if a bank representative told you the contribution was fine.
Submit within 90 days of the date on the CRA's assessment if they've already charged you. If you're filing proactively, submit the waiver request with your RC243.
The mistake that triggers most overcontributions
You withdrew $8,000 in July for a down payment and recontributed it in November because the deal fell through. That November deposit is an overcontribution. Withdrawals only restore contribution room on January 1 of the following year. The same-year recontribution is the single largest category of TFSA penalties the CRA assesses, and it's the one they are least likely to waive because the rule is explicit in every TFSA guide.
If you hold TFSAs at three institutions and each shows a balance under your annual limit, you can still be over. The $7,000 limit for 2026 is per person, not per account. Banks do not share your total across institutions. Check your actual room on My Account before any deposit, and remember that figure reflects prior-year data only. Subtract what you've already contributed this calendar year manually.
The penalty is avoidable. The waiver is not guaranteed. Withdrawal is the only move that stops the bleeding.
A $3,000 deposit in April can cost you $360 by year-end if you didn't have the contribution room. The Canada Revenue Agency charges 1% monthly on the highest excess amount that sat in your TFSA during that month, 12% annualized, and the clock doesn't stop just because you didn't know.
The penalty math that compounds faster than your returns
The penalty applies even if the overcontribution was five dollars. If you put $7,500 into your TFSA in 2026 when you only had $5,000 of room, you owe 1% on $2,500 for every month the excess sits there. March through December is ten months. That's $250 in penalty tax on a mistake that might have earned you $180 in growth if you'd left it in a savings account at 3%.
The CRA doesn't send a warning. They send Form RC243-P, a proposed tax return, usually in late spring after your financial institution reports the prior year's transactions. By the time you get the letter, you've often already accrued three or four months of charges.
Withdraw the excess immediately, then file
Pull out the exact dollar amount of the overcontribution as soon as you identify it. Withdraw from the account with the lowest current value if you hold multiple TFSAs, because the penalty is based on the contribution amount, not the market value. If you contributed $5,000 and it dropped to $3,000, you still owe penalties on $5,000 until you withdraw at least that original sum.
The withdrawal doesn't erase prior months. If the excess existed at any point in May, you owe the 1% for May even if you pulled it out on May 15th.
After withdrawing, file Form RC243 (the self-filed version of the proposed return) with the CRA. Include a letter explaining the error and the date you corrected it. Do not wait for them to contact you. Taxpayers who self-report before receiving the RC243-P from the CRA have a meaningfully higher success rate on waiver requests.
Request a waiver under Section 207.06(1)
The CRA can cancel the penalty if you meet two conditions: the overcontribution was a "reasonable error" and you removed the excess "without delay" once you discovered it. Reasonable does not mean forgetfulness. It means a bank processing mistake, a misreported withdrawal on your CRA My Account summary, or a contribution made during a period when you were incapacitated and unable to track accounts.
"I thought I had room" is not reasonable. "I checked My Account and it showed $10,000 available, but that figure hadn't updated to reflect my February contribution" can be, if you include screenshots.
The waiver request goes on Form RC4288. Attach evidence: account statements showing the dates of contributions and withdrawals, printouts from My Account showing what your displayed room was on the day you contributed, records of any third-party advice if a bank representative told you the contribution was fine.
Submit within 90 days of the date on the CRA's assessment if they've already charged you. If you're filing proactively, submit the waiver request with your RC243.
The mistake that triggers most overcontributions
You withdrew $8,000 in July for a down payment and recontributed it in November because the deal fell through. That November deposit is an overcontribution. Withdrawals only restore contribution room on January 1 of the following year. The same-year recontribution is the single largest category of TFSA penalties the CRA assesses, and it's the one they are least likely to waive because the rule is explicit in every TFSA guide.
If you hold TFSAs at three institutions and each shows a balance under your annual limit, you can still be over. The $7,000 limit for 2026 is per person, not per account. Banks do not share your total across institutions. Check your actual room on My Account before any deposit, and remember that figure reflects prior-year data only. Subtract what you've already contributed this calendar year manually.
The penalty is avoidable. The waiver is not guaranteed. Withdrawal is the only move that stops the bleeding.
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