Pitfalls, Protection and Official Sources
TFSA withdrawal and re-contribution mistakes: how same-year re-deposits become over-contributions
Five common ways Canadians over-contribute to a TFSA after a withdrawal, worked month-by-month examples of the 1% tax, how to spot the problem early and what to do next.
The most common TFSA mistake in Canada is not exceeding the annual limit; it is putting money back in the same year it was taken out. A TFSA withdrawal is added back to your room only on January 1 of the following year, so if you withdraw $10,000 in March and re-deposit it in June, the June deposit uses new room. If you have none left, the excess is taxed at 1% a month on the highest excess in each month until you withdraw it, with no buffer. The same trap catches people who move a TFSA between institutions by withdrawing and re-depositing instead of using a direct transfer.
This guide is part of the mistakes and official sources hub. It focuses on how these mistakes happen and how to spot them. General information only.
Five ways it happens
| Pattern | Why it creates an excess |
|---|---|
| Withdraw for an expense, re-deposit when cash comes in | The re-deposit uses new room; the withdrawal returns only next January |
| "Moving" a TFSA by withdrawal and new deposit | The new institution's deposit is a new contribution |
| Treating a TFSA like a chequing account | Each in-and-out cycle uses room again |
| Several TFSAs at different institutions | Room is shared, but each institution sees only its own account |
| Relying on My Account mid-year | It may not show this year's deposits and withdrawals |
Worked example: a same-year re-deposit
An illustrative saver has $4,000 of unused TFSA room on January 1, 2026 and a $50,000 TFSA.
| Date | Transaction | Room remaining | Excess |
|---|---|---|---|
| January 1 | Starting room | $4,000 | – |
| February 10 | Deposits $4,000 | $0 | – |
| April 5 | Withdraws $12,000 for a renovation | $0 (the $12,000 returns January 1, 2027) | – |
| July 15 | Re-deposits $12,000 from a bonus | –$12,000 | $12,000 |
| September 30 | Notices and withdraws $12,000 | – | Excess removed |
The excess existed in July, August and September. Tax: 1% × $12,000 × 3 months = $360. Note that the September withdrawal removes the excess but does not create room for 2026, and under the CRA's rules a withdrawal that only eliminates an excess is generally not added back the next year either. On January 1, 2027 the saver should expect the $12,000 April withdrawal plus the $7,000 limit for 2027, about $19,000, not $31,000. Check the CRA's TFSA guide (RC4466) for how "qualifying" withdrawals are counted.
If the saver had waited until January 2, 2027 to re-deposit, there would have been no tax.
Worked example: moving accounts the wrong way
An illustrative saver with $80,000 in a TFSA at one institution and no unused room decides to move to another. They withdraw $80,000 in May and deposit it at the new institution in May.
- The deposit is an $80,000 contribution with no room: an $80,000 excess.
- Each month it stays: $800 of tax.
- If it took until December to notice, the tax for June to December would be in the thousands, before any relief request.
The right way is a direct transfer: the saver opens a TFSA at the new institution and signs its transfer form, and the two institutions move the money or securities directly. A direct transfer is not a withdrawal or a contribution. See transfers between institutions.
How the 1% tax is calculated
- The tax is 1% of the highest excess amount in each month, even if the excess existed for only one day of that month.
- It continues every month until the excess is withdrawn or absorbed by new room (for example on January 1, when new room arrives).
- Income earned on deliberate over-contributions can be taxed separately at up to 100% under the advantage rules.
- You file Form RC243 (TFSA return) by June 30 of the following year, and the CRA usually sends a letter when it detects the excess.
How to spot a problem early
- Keep a simple log: date, institution, deposit or withdrawal, amount. Add a running "room left this year" column.
- Before any deposit, check the log, not just My Account.
- Watch for CRA letters in My Account; the CRA sends TFSA excess letters, sometimes many months after the fact.
- If you move money between TFSAs, confirm in writing that it was processed as a direct transfer.
- If you have several TFSAs, consider consolidating to reduce the chance of error.
If you have already over-contributed
- Withdraw the excess right away. This stops the 1% tax for future months.
- File RC243 (and the RC243-SCH-A schedule if the CRA asks) when required.
- Ask for a waiver. The CRA may waive or cancel the tax if the excess arose from a reasonable error and you removed it without delay. Write a short explanation with dates and supporting statements, and submit it through My Account or by mail, following the CRA's instructions.
- Do not re-deposit the withdrawn excess until you have room again.
Quebec notes
The TFSA is federal, so the 1% tax and the RC243 return are the same for Quebec residents. There is no separate Quebec TFSA penalty.
Frequently asked questions
If I withdraw and re-deposit in the same year, is it always a problem?
Only if the re-deposit exceeds your unused room. If you had enough unused room, the re-deposit is simply a contribution.
Does a transfer between my own TFSAs count as a withdrawal?
Not if it is a direct transfer between institutions (or between TFSAs at the same institution) arranged properly.
Will a loss in my TFSA give me room back?
No. Room depends on deposits and withdrawals, not on market value.
What if I didn't know about the rule?
Not knowing is not a defence by itself, but a prompt correction and a clear explanation support a waiver request.
Official sources
- Canada Revenue Agency — TFSA excess amounts, Form RC243 and guide RC4466
- CRA My Account — TFSA room and transaction summary
- Financial Consumer Agency of Canada — using savings accounts and TFSAs
- Justice Laws Website — Income Tax Act Part XI.01 (taxes on TFSA excess amounts)
