Canadians Urged to Monitor TFSA Limits to Avoid Tax Penalties
Tax-Free Savings Accounts (TFSAs) are powerful tools for Canadians looking to grow their investments without paying taxes on the returns. But did you know that exceeding your TFSA limit can trigger monthly penalties from the Canada Revenue Agency (CRA)? This reminder comes just in time as many Canadians contribute across multiple accounts. Understanding your TFSA contribution limit—and staying within it—is crucial to avoid unnecessary tax bills.
How TFSA Overcontribution Happens
It’s easier than you think to go over your TFSA limit. For instance, if you set up automatic deposits and later contribute manually without checking your available room, you could exceed the limit. Similarly, having multiple TFSAs at different financial institutions can make it tough to track total contributions.
Many Canadians mistakenly assume that each account has a separate limit. In reality, your total contribution across all TFSAs counts toward the same cap.
Know Your Limit Before You Contribute
Your TFSA contribution room consists of three parts:
The annual contribution limit
Unused room from previous years
Withdrawals made in prior years (excluding direct transfers)
For both 2024 and 2025, the annual limit stands at $7,000.
To avoid errors, it’s best to monitor your contribution room regularly. You can do this by logging into your CRA My Account, where you’ll find:
Your current TFSA limit
A list of past contributions and withdrawals
Confirmation that your TFSA is properly registered
Being proactive and reviewing your limits before making deposits can prevent future headaches.
What Happens if You Overcontribute?
If you exceed your contribution room, the CRA will charge 1% tax per month on the excess amount until you withdraw it. The CRA will notify you via your online account or by mail. The notice might be an educational letter or a Notice of Assessment outlining your tax liability.
A common mistake? Indirectly transferring funds from one TFSA to another. This counts as a new contribution. Unless it’s a direct transfer, it adds to your annual limit.
How to Fix an Overcontribution
If you’ve overcontributed, the best step is to withdraw the excess amount immediately. This helps reduce the tax penalty. The CRA understands that mistakes happen and may waive or cancel the penalty if they find it fair to do so.
To request a waiver, send the CRA a detailed letter explaining:
Why the excess contribution occurred
Why it would be reasonable to waive the tax
It’s not a guarantee, but the CRA reviews each case individually.
Stay Smart, Save More
Managing a TFSA effectively means more than just making deposits. It’s about smart planning, tracking, and knowing the rules. With a few simple checks, you can ensure your savings continue to grow—tax-free and stress-free.
Stay tuned to Maple Wire for more financial tips, updates, and tax advice tailored for Canadians.
