TFSA Over contribution…what to do

In early January, we received a couple of letters from Canada Revenue Agency (CRA). The letters were not something we were expecting – the CRA informed us that we have TFSA over contribution in Mrs. T’s account by $10,000 since 2012. Since we track our RRSP And TFSA contributions closely, we were totally shocked to see these letters about TFSA over contribution and thought CRA made a mistake. We have always contributed the maximum allowed amount each year, $5,000 in 2009, 2010, 2011, and 2012; 5,500 in 2013, 2014, and 2015 (this is before the recent 2015 announcement of 2015 TFSA limit increasing to $10,000). The total allowed amount adds up to $36,500, exactly what we’ve put in. Needless to say, we were very confused. So what did we do with our TFSA over contribution?

Over contributing TFSA…what to do

The next morning Mrs. T phoned the CRA after many tries and found out that we’ve made a mistake in calculation her TFSA contribution limit. According to the TFSA contribution rules:

Starting in 2009, TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older, have a valid Canadian social insurance number and are a resident of Canada.

Because Mrs. T became a Canadian permanent resident in 2011, she was not eligible to contribute money in the TFSA until 2011, meaning she did not have contribution room from 2009 and 2010 ($10,000 in total).

Ahh so that’s why we over contributed to TSFA for Mrs. T. We mis-read the rule! Oops!

Because our TFSA over contribution mistake was made in 2012, the 1% tax penalty compounded since mid 2012. CRA calculates the penalty not by how much you over-contributed, but by the excess amount remaining in the TFSA. It will continue to apply until whichever of the following happens first:

  • the entire excess amount is withdrawn; or
  • for eligible individuals, the entire excess amount is absorbed by additions to their unused TFSA contribution room in the following years.

Because we usually make the new maximum allowed annual contribution at beginning of each year for Mrs. T’s TFSA, the excess amount was never absorbed by the additional unused TFSA contribution room in the following years. Since Mrs. T’s TFSA portfolio has done reasonably well, our honest TFSA over contribution mistake resulted a TFSA tax penalty close to $1,500. Ouch!

Mrs. T asked the CRA agent what to do during the phone conversation and learned that we should withdraw the over contribution amount immediately, send a cheque with the full tax penalty amount owed, and a letter with explanation and plead for our case. This is exactly what we did.

Step-by-Step Guide on what to do when over contribute to TFSA

In case you want to see a step by step summary of what we did for over contributing TFSA

  1. Call the CRA at 1-800-959-8281 right away and find out about the TFSA over contribution. Get some clarification first.
  2. Get the over contribution amount out of your TFSA immediately. The 1% tax penalty per month counts even if you only have the money for 1 day of the month. In our case we didn’t want to sell the dividend stocks so we transferred them from Mrs. T’s TFSA to her regular account in-kind. Because the stock price varies daily, we had to make sure we transfer slightly more than $10,000 worth of stock shares. The in-kind transfer took a few days to complete with Questrade.
  3. Fill out the TFSA Over Contribution form, and send a cheque with the penalty amount. The CRA gives you limited amount of time to pay. If you don’t pay within this time, you will get charged more. Make sure you do this immediately upon receiving a letter from CRA regarding TFSA over contribution! 
  4. Write a detailed letter and provide all the explanation to plead for forgiveness. We sent this TFSA over contribution penalty waiver letter along with the TFSA Over Contribution form and the cheque to the address listed in the CRA’s letter. The typical process time takes about 12 weeks. Unfortunately we forgot to include the withdraw statement to demonstrate step 1 so we had to send this statement separately. Our recommendation is to include TFSA withdraw statement and any details/proofs of the withdraw to avoid processing delays.
  5. Wait and hope for the best.

Our experience with CRA and TFSA over contribution

When Mrs. T talked to the CRA agent, the agent was quite sympathetic with our situation. She understood it was a honest mistake that compounded itself over the years. The agent also found it odd that we didn’t get informed until 3 years after the fact. Unfortunately she didn’t go as far as saying that the CRA will forgive us and waive the penalty tax. Since it would take 12 weeks or more to process our case, she strongly recommended us paying the penalty right away to avoid further penalties.

A few months after we sent in the withdraw statement, I noticed that we got a direct deposit from the CRA. Shortly after, we received a letter from the CRA stating that they agreed with us and decided to waive the penalty tax that we owe from 2012, 2013, and 2014. Since they’re still waiting for Questrade to provide the 2015 contribution information, they couldn’t waive the 2015 penalty tax. We were informed that we’ll probably get a TFSA over contribution letter for 2015 and need to plead for forgiveness again. We’ll definitely follow the steps and ask for forgiveness again when we receive such letter.

If you have a TFSA, definitely make sure you keep track of your contribution amount, this is especially true if you have multiple TFSA’s with different financial institutions. Do you have any experience with TFSA over contribution that you want to share?

Update: We recently received a letter from CRA stating that we have been forgiven completely. This meant we didn’t have to plead for forgiveness for 2015. Phew!

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  • Reply
    July 6, 2015 at 6:08 pm

    Well, this is a serious case of Early Retirement Syndrome – over saving! ha!

    It sounds like Canadian tax system is as messy as the US tax system. I have a Canadian friend at work who always complain about how complicated the US tax system is, now I can tell her about how you could get mess up in the tax system in Canada also.

    • Reply
      July 7, 2015 at 1:26 am

      Hi Vivianne,

      It was just a honest mistake. If we knew we would have shifted the $10,000 into another account. I don’t think the Canadian tax system is that complicated, just need to make sure you know what you’re doing. 🙂

  • Reply
    July 6, 2015 at 7:01 pm

    wow, this sucks… big time!

    I think we’re more or less in the same boat as you guys, since we arrived in Canada in 2009 but became permanent residents in 2012. However we both had Social Insurance Numbers from the beginning. Also I’ve always checked Revenue Canada’s portal to see the exact limit reported by them which is counted since 2009 according to them. I’m wondering if you have been checking that website throughout this time?

    I really hope they forgive the whole amount, letting you know this later is not fair at all, specially if that was the limit they were telling you on Revenue Canada website as well as tax returns.

    • Reply
      July 7, 2015 at 1:25 am

      Hi Soheil,

      Good point on checking Revenue Canada’s portal… we haven’t done that and probably should be doing that in the future. They have forgive the amount from 2012, 2013, and 2014 as I’ve mentioned in the post. Just need to wait for 2015 news I guess.

  • Reply
    Adam @
    July 6, 2015 at 8:08 pm

    That’s a real bummer for an honest mistake. I hope they have mercy.

    • Reply
      July 7, 2015 at 1:24 am

      Hi Adam,

      We got the tax penalty waived for 2012, 2013, and 2014, so got the $1500 back. Now just need to wait for the 2015 assessment.

  • Reply
    Special Agent Dividend
    July 7, 2015 at 10:11 am

    Well I was about to say they should give some type of waiver for a honest mistake, but reading your last comment it looks like they at least waived most years. That’s a huge sigh of relief I’m sure. Hopefully, everything will work out in the end.. I’m sure it will.

    • Reply
      July 8, 2015 at 6:30 am

      Hi Special Agent Dividend,

      We’re hoping everything will work out in the end as well. 🙂

  • Reply
    Dan @ Our Big Fat Wallet
    July 7, 2015 at 11:18 am

    This must be frustrating for you guys but sounds like it will work out well. If anything I think CRA should have informed you years ago of the error rather than letting the interest on the penalty continue to grow. I wish CRA was more efficient in their communication, seems like it takes 1-2 years for things to get noticed in the event of a discrepancy

    • Reply
      July 8, 2015 at 6:31 am

      Hi Dan,

      We think everything will work out well. Agree with you that the CRA should have informed us years ago about the error. To charge us penalties over the years didn’t seem fair to us… we would have removed the amount immediately if we were informed in 2012.

  • Reply
    Liquid Independence
    July 7, 2015 at 4:20 pm

    Sorry to hear this happened to your wife. Hopefully Questrade gets the records to the CRA asap. It’s good there was a nice representative on the other end of the phone line and you got part of the penalty waved. If you’ve set up a CRA online account you can log in and see your TFSA contribution details, and remaining RRSP room for the current year. However I’ve noticed it’s not always up to date, at least with my information, so keep good records yourself anyway. 🙂

    • Reply
      July 8, 2015 at 6:32 am

      Hi Liquid,

      I have my CRA account set up but haven’t checked in a few long time. From my memory, data isn’t always up to date but may have to check again.

  • Reply
    Will @ Phroogal
    July 8, 2015 at 8:56 am

    Shoot, I did this with my Roth IRA here in the States. Wasn’t too bad though. Vanguard helped me work it out. I love that group of people. You have them in CA, don’t you?

    • Reply
      July 9, 2015 at 7:25 am

      Hi Will,

      That’s great that Vanguard helped you work it out. Yes we have Vanguard here in Canada too.

  • Reply
    Jayson @ Monster Piggy Bank
    July 9, 2015 at 12:59 am

    Hi Tawcan, I have a question. Can you transfer stocks, bonds, etc from your RRIFs to your TFSA without selling the stock or bond? Hope you could give me some ideas. Thanks.

    • Reply
      July 9, 2015 at 7:27 am

      Hi Jayson,

      To be honest I’m not 100% clear on RRIF rules since I’m nowhere close to converting RRSP to RRIF. I believe you need to transfer any in-kind securities from RRIF to a regular account first then transfer them to TFSA. They’ll be considered as taxable income in this case.

  • Reply
    July 14, 2015 at 1:18 pm

    Thanks for sharing the information. Well I had a similar situation. I was counting my contribution room since 2009 however I was only eligible from 2012 and received letter from CRA with 1% over contribution tax penalty. However I had the screenshot of I send the screenshot along with the waiver request letter and finally the fees were waived.

    • Reply
      July 15, 2015 at 9:42 am

      Hi Dipu,

      That’s great that you got your penalty waived.

  • Reply
    October 5, 2015 at 11:01 pm

    I am in the same boat and just paid $1457 to CRA in July. I also sent a letter along with the receipt requestingand suggesting that it was a genuine error. It’s been 2.5 months already. Any idea how long does it usually take to get some feedback? Should I be calling them again?

    • Reply
      October 6, 2015 at 9:37 am

      Hi Raj,

      I think we got feedback after about 12 weeks so you should be getting a response soon. I’d try calling them just to check the status.

  • Reply
    November 21, 2015 at 1:30 pm

    I am glad I found this blog.

    Got a letter today from CRA with a total of $1100 fine yesterday for over contribution in year 2012 and 2013.

    I moved to Canada in 2010 and unknowingly contributed in 2012,2013 for the year 2009. Got taxed $500 for 2012 and $600 for 2013.

    Have send the plea letter to CRA explaining the circumstances and will call them first thing on Monday. If they tell me to send the cheque will send it separately. Hoping for the best.


    • Reply
      November 23, 2015 at 11:06 am

      Hi Gary,

      Glad to have helped. Hopefully you can get this all sorted out.

    • Reply
      April 28, 2017 at 12:02 am

      Any update on your case Gary? I’m in the same boat!

  • Reply
    December 3, 2015 at 12:44 pm

    I was hit by the same hammer yesterday, only even more severe 🙁 🙁 🙁 ! for 4 years I’ve had 10K over the limit and yesterday I got a total of $3300 penalty (yes that’s 3K+)!!!!!! I’m gonna do like you did and hope they’ll be as generous with me. That’s a severe blow for a student who just graduated!

    • Reply
      April 28, 2017 at 12:01 am

      I’m in same boat, CRA shows my contribution room from 2009.
      And last year almost I max out tfsa. I have moved to Canada in 2013.
      I didn’t receive any letter from CRA though. I’ll be pleading ASAP.
      Any update from you John?

  • Reply
    January 9, 2018 at 12:07 am

    Hello Tawcan,
    I have been an avid reader of your blog for sometime.
    I have around 260000 cdn to invest.
    I am not sure that I will be retiring in Canada so Investing in RRSP would not be worth it
    I was thinking of the following:

    In taxable account: (total 200 000 CDN)
    30% VUN
    30% VIU
    40% VSB

    In my TFSA (I will max it out)
    Individual Canadian stocks, One Canadian REIT ETF as well as an emerging market ETF listed on TSX.

    I will be re balancing once year my taxable account

    Would appreciate you input.

    Thank you and regards


  • Reply
    July 23, 2018 at 7:18 pm

    Great post, quick question. You mentioend Fill out the TFSA Over Contribution form, which form is this? Thanks in advance

      • Reply
        July 26, 2018 at 5:06 pm

        Hi Tawcan,
        Thanks for sharing your experience. It was a really helpful. I experienced kind of similar situation. I got a letter from CRA saying that I owe some money because of over-contributing to my TFSA for 2017. Unfortunately, I didn’t know withdrawing money and putting it back counts as a new contribution. I called CRA and they said I have to pay the money and there is not much chance to waive! But I want to write the letter and plead for the forgiveness, since I’m an international student and this penalty is not affordable for me. Can you please explain a bit more how you proved it was an honest mistake?
        Thanks in advance,

        • Reply
          July 27, 2018 at 1:38 am

          We just provided explanations on how and why we made the mistake in the first place. Basically, Mrs. T became a Canadian permanent resident in 2011, she was not eligible to contribute money in the TFSA until 2011, meaning she did not have contribution room from 2009 and 2010 ($10,000 in total). We had mistakenly thought she would get contribution room from 2009 and 2010. And since we maximized TFSA contribution room at beginning of each year, the mistake kept compounding, and we weren’t informed by CRA until 3 years later.

          I think the CRA is being more careful about TFSA over contribution now. What I’d do is withdrawing the over contribution amount immediately, pay the penalty, write a letter, and plead for forgiveness. Just explain that you didn’t know that putting money back counts as a new contribution and lay out the timeline carefully. Good luck.

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