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Don't get penalized for over-contributing to your TFSA! Instead of watching your nest egg get clawed away learn how to use a TFSA and RRSP to max advantage!


Yes, that’s the first thought that came to my mind when I received the letter from the Canada Revenue Agency that informed me I over contributed to my TFSA.

I was in disbelief when I received the letter.

I didn’t think it would ever happen to me.

I even had a post titled “Watch Out for TFSA Over Contributions!”  No one ever thinks it will happen to them, but it did.  It happened to me too.  No one is immune (haha okay maybe most people who actually keep detailed records of their TFSA contributions are immune).  Although it’s not very much that I had to pay (around $500 for this year and I think another $300 or so next year), I wish I knew about it earlier so I didn’t have to pay the penalty for a full 6 months (and then another 6 months or so next year because I found out in June).

How I Over Contributed To My TFSA

I thought I was doing really well because I checked the Canada Revenue Agency Quick Access Tool and saw that I had X contribution dollars.  It wasn’t straight and easy (not simply $5000 per year) because I took out money in 2011 and was able to contribute more the following year because I made more money than the annual TFSA contribution limit.  I was doing a lot of in-kind transfers from my non-registered accounts to my Questrade TFSA as well, for small amounts like $452.14 so it was hard to keep track (no excuses I know).

Related: 3 Reasons Why a TFSA Is Likely Better than a RRSP if You’re Under 30

Anyway so I used the Quick Access Tool.  I ended up thinking hey, this should be reliable since it’s straight from the government.  However, it was not.  It was not updated and I ended up having a domino effect happen to my TFSA account and I over contributed by almost $5000 or so in 2013.

Yikes, right?

The Quick Access Tool isn’t always updated on time- I checked late in 2012 when I made my contributions and it was not 100% updated and did not reflect what I had contributed in 2011 I believe.  That’s what happened to my knowledge.

What I Should Have Used Instead

Instead of the Quick Access Tool, if you are ever uncertain about your TFSA contribution history and want it straight from the horse’s mouth, you should contact the Canada Revenue Agency and ask for a TFSA Transaction Summary.  Their number is 1-800-959-8281.  They will give you a verbal detailed history of all your contributions since 2009.

Another thing I should have done was not be lazy and actually use a spreadsheet to keep track of it all, instead of writing it in my little dollar store notebook like I usually do.

What To Do When You Over Contribute To Your TFSA

Here’s what you do when you over contribute to your TFSA.

1) Get that excess amount out of there as soon as possible.  The longer you have it in there the more penalty you get.  Even if you have it in their for 3 days of that month, you are still dinged for that month.

2) Call the Canada Revenue Agency to Clarify 1-800-959-8281 and explain your situation (plead your case, whatever you want to call it).

3) Fill out that Over Contribution form, suck it up, and pay the amount (send a cheque) – you have to appease the Tax Gods, and they will reverse the amount if necessary.

4) Write a letter detailing your explanation and pleading your case.  Also include the history of the contribution amounts from your account (printed out).

5) Cross your fingers and hope for the best.  It will take at least 8 weeks for you to get a response from the Canada Revenue Agency.

I am currently at Stage 5.  I will keep you guys posted as to what the Canada Revenue Agency decides, but so far, doesn’t look good.  That’s okay though, it is only $500 but I learned my lesson and I hope you can all learn yours!  Call your friendly service representative at the Canada Revenue Agency for a transaction summary if you’re not 100% sure of your contribution history.  It doesn’t take a long time and it’s good to make sure you and your friendly government are on the same page.

2018 Update

With the federal election last year you could be forgiven for not really knowing where the current TFSA contribution limit actually stands.  (There was noise about the Conservatives raising it to $10,000 per year, but capping it at that point, then finally the Liberals decided to go back to the old structure of $5,500, but indexing that annual contribution room to the rate of general inflation.)

So, remember that if you take money out you have to wait until the following year to get that contribution back, but here’s a quick summary of how overall TFSA contribution room has shaped up since the concept was brought in several years ago (including the one-year gift of $10,000-worth of contribution room that you can keep with you forever as long as you were 18 in 2015).



















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Article comments

jody says:

What if you KNOW you overcontributed $5000 but you have not received an excess contribution letter? Unfortunately, i discovered that my tfsa company doesn’t submit information from the previous year until mid February or so, so last year i believed the full contribution amount shown early February was correct!

Robb Engen says:

Hi jody, you should withdraw the excess amount immediately by contacting your financial institution and asking them to withdraw the excess. You’ll be charged for each calendar month that the excess is in your TFSA, so even if you’ve only been over your contribution room for eight days in March, you’ll be charged for the month of March.

Ian says:

Just curious if you got a response back? Would be interesting to know if they responded with a letter of sorts.

Joshua says:

Sigh. I may be in the same boat.

I started a weekly auto-deposit into my TFSA in 2016 as a way to live more frugally & become serious about saving. Previous to that I had money in savings accounts earning less than 1% interest.

I didn’t really understand much about TFSAs apart from that you don’t get taxed on capital gains. Anyway I only just realized that I had over-contributed in. I honestly thought that my bank would tell me that my TFSA was “full” or that I would get a notification from the CRA that my limit was almost up. I’m sure it sounds foolish but not all of us are financially savvy. I didn’t even realize there was a penalty for overcontributing. I thought you’d just pay capital gains tax on any amount over your limit. Isn’t the whole point of the TFSA to simplify & encourage saving?

Anyway as soon as I noticed that I was over my limit, I withdrew the excess so that I was balanced. This was last month.

Then I went to the CRA website, fearing the worst. Nope, the website said that I still had $18k room to contribute! I was confused and thought that maybe I just misunderstood how this worked. (no screenshot unfortunately) Fortunately, I hadn’t deposited anything more as the auto-deposits were already canceled.

Today I logged in to check on my tax return and noticed that my TFSA numbers were all different. It looks like I have been overcontributing for many months. If penalties are 1% per month + interest, that would basically erase half my savings for 2016 🙁

My question: Was your penalty waiver request successful? I haven’t received a letter from CRA but am trying to figure out if I should call them or involve a tax laywer?

Sigh, what’s the point of saving really? All this headache & frugal living, with nothing to show after.

Pengally says:

Ian – you didn’t say how long the overcontribution was in the TFSA account and whether you reversed it or had left it in there until the penalty note. TD just reversed a similar error I made – so the TFSA account shows $ going in and out the same day. They said that they had canceled the contribution. Will CRA think that? Does anybody have experience of a canceled contribution a year later when CRA gets round to assessing a penalty?

Ian says:

Just had to fill up the form and send CRA my $43 in penalties for mistakenly transferring my money to a TFSA account instead of the regular savings. The worst part, though, is not the money but the Schedule A that is needed to be filled up along with the form. I felt like a schoolboy punished to write down the ‘I’m sorry’ for 1000 times. Such a waste of time!

Ron Thompson says:

My problem came to light in July/15 when my wife and I got notice of over contribution. We thought we were fine but had changed financial managers in early 2013. Somehow the previous adviser sold our TFSA holdings at a 25% loss which translated into roughly $5,500 each. The new guys didn’t catch it and neither did we for all kinds of reasons too complicated to explain. They told us we had room for more contributions and we made them. Bang. Fined $450 each. Have not paid. Made submissions proving error. No response. have made 5-6 calls, written letters. No response. Financial advisors circled the wagons, no help there. We are “on hold” into our 6th month. Hindsight, maybe I should have just paid, but we were already out almost $11,000 and hadn’t done anything but trusted our advisors. So we wait or try calling a number that seems to be busy. Changes to TFSA with new Gov’t may be coming but not for us. We’re out of the TFSA business however this turns out.

Kyle says:

That’s a really bad experience Ron, but I would encourage you not to give up on the TFSA yet. It can be a valuable tool. Have you taken a look at our free investing eBook on the homepage? Why not take control of your own TFSA, and just buy-and-hold a basic couch potato portfolio instead of all of this trading stuff?

Thanks for the link to the quick access tool. We are behind one year and made a withdrawal in 2012 or 2013 that I need to look into to know how much we can now recontribute. We use our TFSA invested in mutual funds as part of our emergency fund, hoping we don’t have to use, but they’re there if needed.

Koala says:

I somehow did this too, in 2013. I’m still not sure what I did, possibly by miscounting the number of months when I set up an automatic transfer.

The over-contribution occurred on Dec 31 though, so I’m hoping the CRA will just overlook it, especially since it wasn’t by a large amount. I haven’t heard from them yet about it. I’ll make sure I factor that in when determining my contribution room in the future!

Tawcan says:

Good point about calling CRA for clarification. I track my wife and I’s TFSA contributions via a spreadsheet. I can see how it might get complicated if you start taking out money from the TFSA.

Potato says:

You should have some luck in getting the penalty reduced, if only because the over-contribution compounded due to their delay in telling you about it.

Note that their transaction summary may still not be up-to-date: if the banks and brokerages haven’t gotten around to logging the transactions, there’s no way for the CRA to know. Ultimately, it’s up to each individual to track their contributions. If you don’t have your own record-keeping system, then go back through your bank and/or brokerage statements and set one up (and hope you didn’t open an account that you forgot about).

For myself, I have some non-registered investments so I make my life easy by contributing to my limit in the first week of January each year by doing an in-kind contribution with whatever cash is needed to round it out. It’s not always possible to simplify that way though — for some it’s better to do regular automatic contributions through the year. If you have to ad hoc it, there’s nothing to do but track carefully and check your statements.

Phil says:

That’s a bummer… I’ve over contributed in the past to my RRSP, and talk about complex, for trying to right the wrong…. For my TFSA, each January I put in the limit for the year, and that way there is no issue. I plan to take money out of the TFSA only after my RRSP has been drained, so I have no real issue with the possibility of over contributing. I view the TFSA as the ultimate savings vehicle since I’m not working… so it’s a no touch account until I NEED money. $500 is a hard lesson though, so thanks for sharing. – Cheers.

That’s a good lesson to learn for sure. Thanks for sharing. I actually didn’t know how the process worked if an over contribution was made. I haven’t maxed out my TFSAs yet and I rarely move money in/out of them so it’s dead simple to keep track of things.

However, in the future I’m sure I will run into it at some point. Very informative.

I overcontributed by $200 at the beginning of 2014. It happened because I had forgotten about an automatic transfer between my account. To make matters worse, it was a transfer between two places (Tangerine to TD Direct Investing). As soon as I noticed I called Tangerine but they said they couldn’t reverse it because the money was gone to another bank. So I called TD and they promptly reversed the transfer within a week.

In this case it’s marked as a Reversal of Contribution in my account, so it shouldn’t count as overcontribution to the eyes of the CRA. Let’s hope for the best! (Worst case scenario it’ll cost me $2)