I withdrew from my TFSA in June and recontributed in September — why does CRA say I overcontributed?
Because a TFSA withdrawal does not restore your contribution room until January 1 of the following calendar year. Your September deposit counted as a brand-new contribution against this year's room — and if you had no room left, it created an excess amount, which the CRA taxes at 1% per month on the highest excess for each month it sits in the account. This is the single most common TFSA mistake in Canada, and it catches newcomers and long-time residents alike.
How TFSA contribution room actually works
Your contribution room each year is made up of three pieces:
- The annual TFSA dollar limit ($7,000 for 2026, unchanged from 2024–2025).
- Any unused room carried forward from previous years.
- Withdrawals you made in previous calendar years — restored on January 1.
The third piece is the trap. Suppose you had exactly $0 of unused room at the start of the year and contributed your full $7,000 in March. In June you withdrew $10,000 for an emergency. Your 2026 room is still used up — the $10,000 comes back only on January 1 of next year, when your room becomes $7,000 (new annual limit) + $10,000 (restored withdrawal) = $17,000.
The trap, step by step
| Month | What happened | Room left | Excess |
|---|---|---|---|
| Jan | Contributed $7,000 | $0 | $0 |
| Jun | Withdrew $10,000 | $0 (restores next year) | $0 |
| Sep | Recontributed $10,000 | $0 | $10,000 |
| Jan (next year) | New room: $17,000 | $7,000 | $0 (absorbed) |
The September deposit is an overcontribution. The tax is 1% of the highest excess amount in each month for as long as the excess remains: $10,000 × 1% × 4 months (September–December) = $400, and you still have to file a TFSA return (Form RC243) and pay it. When the new year brings fresh room, the excess is absorbed — the penalty stops, but it is not refunded for the months it already accrued.
The one exception: qualifying transfers
A direct transfer between your own TFSAs — or between your TFSA and your spouse or common-law partner's TFSA when a relationship breaks down — is a "qualifying transfer." It does not count as a contribution or a withdrawal, so it never touches your contribution room. If you moved money between accounts by withdrawing it and re-depositing it yourself instead of asking the institution for a direct transfer, CRA treats that as a withdrawal plus a new contribution — and the trap applies.
What to do if you have already done this
- Withdraw the excess amount as soon as possible. The 1% tax is calculated month by month on the highest excess in that month, so every month it stays costs you.
- File Form RC243 (TFSA Return) for the year of the overcontribution — due by June 30 of the following year — and pay the tax owing.
- Track your own records. CRA's figures can be months behind because institutions report annually; CRA itself tells holders to keep their own contribution and withdrawal records.
- If the overcontribution was an honest misunderstanding of the rule, you may be able to request a waiver — see our companion article on the reasonable-error waiver process.
Frequently asked questions
Does the penalty stop if new January room absorbs the excess?
Yes. On January 1, the restored withdrawal room and the new annual limit create fresh contribution room, and the excess is absorbed to the extent the new room is sufficient. The 1% tax stops accruing from that point — but you still owe it for the months before January.
What if I withdraw the excess the day after I deposited it?
The tax is based on the highest excess amount at any time during the month. A one-day excess still triggers the 1% charge for that month. Withdrawing immediately limits the damage to one month instead of many.
Can I rely on CRA My Account to tell me my real room?
Not blindly. CRA's TFSA records are updated from institution reporting that arrives by the end of February for the previous year and can take months to process. Your own records — every contribution and withdrawal across every TFSA — are the reliable source.
Sources
- https://www.moneysense.ca/save/investing/tfsa/what-to-do-if-you-overcontribute-to-your-tfsa/
- https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributing/overcontribute.html
- https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/tax-payable-on-tfsas/tfsa-excess-amount-correspondence-explained.html
- https://taxpayer.law/tfsa-over-contributions/