ELI5 summary
Why over-contributions happen
Almost nobody over-contributes on purpose. The usual causes are:
- Recontributing a TFSA withdrawal in the same year. A withdrawal only becomes room again on January 1 of the following year, so putting the money back sooner uses new room.
- Relying on an out-of-date number. CRA My Account shows TFSA room as of January 1 and can lag institution reporting by weeks. Your RRSP deduction limit on the Notice of Assessment does not reflect contributions made since you filed.
- Several accounts at several institutions. Each bank only knows about its own account. The limit is per person, not per account.
- Automatic contributions. A monthly pre-authorized deposit or a group RRSP through payroll keeps running after your room is used up.
The TFSA: 1% of the highest excess each month
A TFSA excess exists whenever the total you have contributed this year is more than the room you had on January 1. The CRA charges 1% of the highest excess amount in each month for every month any of it remains. There is no cushion.
Worked example
Maya had $7,000 of room on January 1, 2026 and contributed $7,000 in January. In March she withdrew $6,000 for a trip, then deposited $6,000 again in May when she was paid back. From May onward she has a $6,000 excess, because the March withdrawal does not become room until January 1, 2027. If she notices in September and withdraws $6,000 right away, she owes 1% × $6,000 = $60 for each of May, June, July, August and September: $300, plus an RC243 return due by June 30, 2027. Had she left it until January, the charge would have been $480 and the excess would simply have been absorbed by the new year’s room.
How to fix a TFSA excess. Withdraw the excess amount as soon as you know about it. A withdrawal made to remove an excess stops the tax immediately, even though it does not create new room until next year. Then file form RC243, the TFSA return, by June 30 of the following year and pay the tax. The CRA often sends a letter first; do not wait for it.
Deliberate over-contributions are treated much more harshly. If the CRA concludes you over-contributed on purpose, any income earned on the excess can be taxed as an “advantage” at 100%, on top of the 1% monthly tax.
The RRSP: a $2,000 cushion, then 1% a month
The RRSP has a built-in allowance: you can be up to $2,000 over your deduction limit, cumulatively over your lifetime, without penalty. The cushion is only available if you were at least 18 in the previous year. Anything above it is taxed at 1% per month.
Worked example
Daniel’s 2026 deduction limit was $14,000. He contributed $9,000 through his employer’s group RRSP and, forgetting that, another $14,000 in February. He is $9,000 over his limit, so after the $2,000 cushion his excess is $7,000, which costs $70 a month. He reports it on form T1-OVP, due 90 days after the end of the year, and pays the tax. New room earned the following January 1 will reduce or eliminate the excess.
How to fix an RRSP excess. You have two options, and they can be combined:
- Withdraw the excess. An RRSP withdrawal is normally taxable income. When you are withdrawing undeducted contributions to fix an over-contribution, you can ask the CRA to approve the withdrawal without withholding tax using form T3012A, and then claim an offsetting deduction on your return using form T746, so the withdrawal is not taxed. Timing rules apply, so read the forms before you act.
- Wait for new room. If you expect new room on January 1, you can leave the excess and pay the tax until then. For a small excess close to year-end, that can cost less than the paperwork.
Keep in mind that the $2,000 cushion is a lifetime allowance, not an annual one. If you use it, it is used until new room absorbs it.
The FHSA: 1% a month, fixed by a designated withdrawal or transfer
An FHSA excess arises when contributions, plus any transfers in from an RRSP, exceed your participation room: the year’s $8,000, plus up to $8,000 carried forward, within the $40,000 lifetime cap. The tax is again 1% of the highest excess in each month.
The FHSA has a cleaner fix than the TFSA. You can remove an excess by making a designated withdrawal, which is not included in your income, or a designated transfer of the excess to your RRSP or RRIF. Either way you are designating the amount as removal of an excess, so it does not count as a taxable withdrawal. An excess also shrinks on January 1 when the new year’s room arrives.
Asking the CRA to waive the tax
For all three accounts, the CRA can cancel or waive the tax if the excess resulted from a reasonable error and you removed it without delay. There is no automatic waiver; you have to ask, in writing, with:
- what happened and why it was an honest mistake, such as relying on an institution’s statement;
- the dates of the contributions and of the corrective withdrawal;
- copies of statements that show the money coming out.
Acting quickly matters in two ways. It stops the charge, and it is the single strongest fact in a waiver request.
Show the math
TFSA excess amount at a time in the year = contributions made in the year to that time + excess at the end of the prior year − (unused room at the beginning of the year + qualifying withdrawals made in the year to that time that reduce an excess). Tax = 1% × highest excess in each month (RC243 due June 30 of the following year). RRSP: cumulative excess = undeducted contributions − deduction limit; taxable excess = cumulative excess − $2,000 (if 18 or older in the prior year); tax = 1% per month (T1-OVP due 90 days after year end). FHSA: excess = contributions + transfers from RRSPs − participation room; tax = 1% × highest excess in each month; removable by designated withdrawal or designated transfer.
Preventing the next one
- Keep your own ledger: date, account, amount, contribution or withdrawal. It is more current than any official figure.
- Treat TFSA withdrawals as next year’s room, never this year’s.
- Before a lump-sum RRSP contribution, subtract anything already contributed through payroll since your last Notice of Assessment.
- If you run automatic deposits, set a reminder to review them each January.
Key takeaways
- All three accounts charge 1% per month on an excess; the RRSP forgives the first $2,000.
- Withdraw the excess as soon as you find it, then file RC243 (TFSA) or T1-OVP (RRSP).
- An FHSA excess can be removed by a designated withdrawal or transfer that is not taxed.
- Honest, quickly corrected mistakes can be waived, but only if you ask.