RRSPs RRIFs and TFSAs -> Tax-free savings accounts (TFSAs) -> TFSA Overcontributions
Tax-Free Savings Account (TFSA) Excess Contributions
Your contribution room is determined at the beginning of each tax year. If you have $5,000 in contribution room, and make a $5,000 deposit to your TFSA, then you cannot make further contributions to your TFSA in the same tax year, even if you make a withdrawal. Withdrawn amounts will increase your contribution room, but not until the next tax year.
The tax payable for excess contributions to a tax-free savings account is 1% per month, for any month in which there is an excess amount at any time in the month. This means there will be a tax payable even if the excess amount is withdrawn in the same month in which it is contributed. You may also be charged a penalty of 100% of any income earned from the excess contribution.
Timing is important!
Example 1: John had $5,000 contribution room at the beginning of 2012. He made the following TFSA transactions:
The excess contribution amount is $4,000 for February 2012, and John will pay a tax of 1% x $4,000, or $40.
Example 2: Jane had $5,000 contribution room at the beginning of 2012. She made the following TFSA transactions:
The excess contribution amount is $4,000, for the months July to December inclusive. The tax payable is $4,000 x 1% x 6 months, or $240.
Transferring Your Tax Free Savings Account Between Financial Institutions / Fees for Withdrawals or Transfers
If you want to transfer your TFSA to another financial institution, DO NOT just withdraw the funds, then re-deposit into an account at the new financial institution. This would constitute a withdrawal, and you cannot re-contribute the funds until the following year. You must get the new financial institution to do the paperwork to transfer the funds in the correct manner. Check with both the new financial institution and the old one to see if any fees are involved in doing this. Another alternative would be to withdraw everything from the old financial institution before the end of December, and deposit it to the new financial institution in January. There may be a fee for a full withdrawal from your TFSA. You would likely have some fees to pay to sell the investments at the old financial institution before you can do the withdrawal. Since the settlement date for sales of stocks is normally 3 business days after the trading date, you'd also have to ensure the sale is done early enough so that the funds can be withdrawn prior to year end. If your TFSA is invested in a GIC it would have to mature before you could withdraw the funds. If your investments are in mutual funds, there may be early redemption fees.
In 2011 many people received a TFSA return from Canada Revenue Agency (CRA) asking to provide further information about their TFSA due to an apparent over-contribution. An August 19, 2011 news release indicated that CRA would be as flexible as possible in cases where a genuine misunderstanding of the TFSA contribution rules occurred.
Keep Accurate Records of Your TFSA Deposits
You can use My Account on the CRA website to see the amount of your available TFSA contribution room. However, the information in My Account will not include any contributions that you have made in the current year. In fact, information for the prior year is not updated until financial institutions have filed their information slips with CRA in the following year, perhaps as late as April. For this reason, it is very important to keep accurate records yourself.
Sangha v. Canada (Attorney Genreal) 2020 FC 712: A rare and surprising win for the taxpayer.
The CRA gives a chilling assessment on accidental TFSA overcontributions - by Jamie Golombek, CPA, CA, CFP, CLU, TEP
Know the rules, and do not make excess contributions!
If you did make an excess contribution, withdraw the amount ASAP.
TFSA Investments - qualified, non-qualified, and prohibited
Back to TFSA main page.
Revised: September 15, 2021
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