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Deadlines, Penalties and Official Sources

TFSA, RRSP and FHSA over-contribution penalties: the 1% a month tax and how to stop it

How the 1% monthly tax on excess TFSA, RRSP and FHSA contributions works, the $2,000 RRSP buffer, worked examples, the forms to file and how to ask the CRA for a waiver.

Updated · 5 min read

TFSA, RRSP and FHSA over-contribution penalties: the 1% a month tax and how to stop it

Contributing more than your room to a TFSA, RRSP or FHSA triggers a tax of 1% per month on the excess for every month it stays in the account. For a TFSA and an FHSA there is no buffer: the tax applies to the highest excess in each month. For an RRSP there is a lifetime $2,000 cushion: only the excess above $2,000 is taxed. The fix is the same in each case: withdraw the excess as soon as you notice, file the special return the CRA requires, and, if it was an honest mistake corrected quickly, ask the CRA to waive or cancel the tax.

This guide is part of the mistakes and sources hub. It is general information, not tax advice.

The rules side by side

TFSARRSPFHSA
2026 new room$7,00018% of 2025 earned income, max $33,810, minus pension adjustment$8,000 (plus up to $8,000 carried forward)
Buffer before taxNone$2,000 cumulativeNone
Tax on excess1% a month on the highest excess in the month1% a month on the cumulative excess above $2,0001% a month on the highest excess in the month
Return to fileRC243 (TFSA return), generally by June 30 of the following yearT1-OVP, within 90 days after the end of the yearThe CRA's FHSA return for the year
How the excess endsWithdraw it, or new room on January 1 absorbs itWithdraw it (with form T3012A to avoid withholding), or new room absorbs itWithdraw or designate a transfer as the CRA allows, or new room absorbs it
Where to check roomCRA My Account (as of January 1)Notice of assessment, My AccountMy Account and your own records

The most common TFSA trap: withdraw and re-deposit in the same year

A TFSA withdrawal is added back to your room on January 1 of the next year, not immediately. Re-depositing the same money in the same year, when you have no other room, creates an excess.

Worked example (illustrative): Alex had used all TFSA room by January 2026. In March 2026 Alex withdrew $10,000 for a car repair, then in September 2026 deposited $10,000 back.

  • Excess from September: $10,000.
  • Months affected: September, October, November, December 2026 = 4 months.
  • Tax: $10,000 × 1% × 4 = $400.
  • On January 1, 2027 the $10,000 withdrawal is added back to Alex's room (plus the new 2027 room), so the excess ends then.

Moving money between institutions? Use a direct transfer arranged by the receiving institution. A transfer does not count as a withdrawal and re-contribution.

Note: the tax applies to the highest excess in each month, so withdrawing the excess later in the month does not avoid that month's 1%.

RRSP over-contribution example

Jordan's 2026 RRSP deduction limit was $12,000, but Jordan contributed $20,000 in February 2026 after misreading the notice of assessment.

  • Excess: $20,000 − $12,000 = $8,000.
  • Taxable excess after the $2,000 buffer: $6,000.
  • Tax: $6,000 × 1% = $60 a month until it is withdrawn or absorbed by new room.

Jordan can withdraw the excess using Form T3012A (so the institution does not withhold tax), and, if the excess is withdrawn in the same year or the following year and was not deducted, claim an offsetting deduction so it is not taxed as income. If Jordan instead leaves it, the 2027 RRSP room (based on 2026 earned income) will absorb part of it from January 1, 2027. Group RRSP contributions through payroll also count, which is a frequent source of accidental excess.

FHSA excess amounts

FHSA participation room starts only in the year you open your first FHSA, so counting $8,000 of "carry-forward" from a year before you opened an account is a common error. RRSP-to-FHSA transfers also use FHSA room. An excess FHSA amount is taxed at 1% a month until it is removed or absorbed by new room the next year. See the FHSA guide.

What to do if it has already happened

  1. Stop the clock. Withdraw the excess (TFSA, FHSA) or the excess above $2,000 (RRSP) immediately.
  2. File the return for the account type for each affected year, and pay the tax shown. The CRA often issues a letter proposing the tax for TFSAs; reply by the deadline in the letter.
  3. Ask for a waiver or cancellation if the excess resulted from a reasonable error and you took steps to remove it promptly. Explain what happened, when you noticed and when you withdrew, with statements as evidence. The CRA decides case by case.
  4. Keep your own record of deposits and withdrawals for each account and institution. My Account figures can lag by several weeks.

Preventing over-contributions

HabitWhy it helps
Check room in My Account each January, and subtract what you have contributed since January 1My Account shows room as of January 1
Keep a simple log of TFSA withdrawalsWithdrawals only become room next year
Use direct transfers between institutionsAvoids the withdraw-and-redeposit trap
Count group RRSP and spousal RRSP contributionsBoth use your RRSP room
Open an FHSA as soon as you qualifyRoom starts only from the year the account is opened

Frequently asked questions

Does the CRA always charge the 1%?

It assesses the tax based on the information institutions report, then it can waive or cancel all or part of it on request where the error was reasonable and corrected without delay.

Can the RRSP $2,000 buffer be used every year?

No. It is a cumulative $2,000, not an annual amount. Contributions within it are not deductible until you have room.

Do over-contributions earn tax-free income?

Income earned in a TFSA on an excess contribution is generally still sheltered, but the 1% tax applies, and deliberate over-contributions can face additional tax.

What about Quebec?

These are federal rules for federally registered plans and apply to Quebec residents too.

Official sources

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