How to avoid overcontributing to your TFSA

Natalie LeBlanc |

In 2009 the Canadian government introduced the Tax-Free Savings Account (TFSA) to help Canadians grow their savings without being taxed on that growth. The basics of the program are now pretty well known: each Canadian over the age of 18 is allowed to contribute up to $75,500 total by 2021 (the current annual limit is $6,000) withdrawals are tax-free, and any withdrawals made create more contribution room for the following year.

There are many benefits to the TFSA, as long as you follow the rules. For example, if you over-contribute the Canada Revenue Agency (CRA) will penalize you for the difference. The penalty is 1% per month of the highest over-contributed amount in that month; so if you put $5,000 too much in and the CRA doesn't catch it for 6 months, you could owe $300 in penalties!

Double Check your current accounts

If you're considering opening a new TFSA , or adding to a current one, ensure you don't already hold a TFSA with your bank or another financial institution. Some representatives may not explain clearly enough that the new savings account you opened 3 years ago to "avoid some taxes" is actually a registered Tax-Free Savings Account and contributions have counted against your limit. Check your statement! We have seen some steep penalties after this innocent overcontribution.

Avoid more than one TFSA unless your records are well kept

Unless you manage and monitor all of your accounts accurately and consistently, you might want to avoid having more than one TFSA. Some people are very financially organized and can handle keeping track of their accounts; others are not! There is no shame in admitting you like to keep your books simple.

Don’t replace your withdrawals until next year

If you ever withdraw from a TFSA, remember that the withdrawal will not create additional contribution room until the following calendar year. For example, if you help your granddaughter with some tuition costs of $3,000 in April, that $3,000 cannot go back into a TFSA, at any institution, until the following January (assuming you had no more contribution room in April).

Transfer your TFSA with the proper paperwork

If you want to transfer a TFSA from one institution to another, be sure that the transfer procedures are followed properly. If you were to take it upon yourself to simply withdraw your TFSA's balance and open a new one, you would be hit with the penalty -- unless you wait to open your new TFSA until January. Be sure you check your contribution room beforehand just in case! This option may be good for you if your current financial institution charges transfer-out fees.

Find out your TFSA room online

You can register for online access with the CRA to keep track of your TFSA contribution room. We'd definitely recommend registering for the purposes of TFSA tracking as well as to view other CRA-based information like the status of your tax return or your RRSP contribution room.

CRA’s system is only updated once a year, however, so any contributions you made this year would not be reflected online. We created a handy spreadsheet tool to help track your contributions, you can download it here.


The tax information provided above is for general information only. It is not to be relied upon as providing legal or tax advice. You are encouraged to consult with your professional tax and/or legal advisor about your particular circumstances.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of the writer’s knowledge as of the date submitted for publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors. The views expressed are those of the author and not necessarily those of the issuer of any financial products for which the author may act as a distributor.


The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This article was produced by Advisor Stream for the benefit of Rick Irwin, Financial Advisor at Trinity Wealth Partners, a registered trade name with Investia Financial Services Inc. The information contained in this article does not necessarily reflect the opinion of Investia Financial Services Inc. and comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.
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