Tax payable on excess TFSA amount

You have an excess TFSA amount at any time in a year as soon as the total of all TFSA contributions you made in the year (other than a qualifying transfer or an exempt contribution) exceeds the total of your TFSA contribution room at the beginning of the year plus any qualifying portion of a withdrawal made in the year up to that time.

The qualifying portion of the withdrawal is the amount of the withdrawal or the previously determined excess TFSA amount, whichever is less.

Any portion of a withdrawal that does not reduce or eliminate a previously determined excess TFSA amount is not a qualifying portion of the withdrawal and cannot be used to reduce or eliminate any future excess TFSA amount that may be created. For more information, see Examples - Qualifying portion of a withdrawal.

If, at any time in a month, you have an excess TFSA amount, you are liable to a tax of 1% on your highest excess TFSA amount in that month. For more information, see Example 2 - Tax payable on excess TFSA amount.

Note
If an excess TFSA amount exists in the account as of the date of death of a TFSA holder and there is a successor holder, see Excess TFSA amount at the time of death.

The tax of 1% per month will continue to apply for each month that the excess amount remains 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• the entire excess amount is withdrawn; or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.

For more information, see Example 3 - Tax payable on excess TFSA amount.

For distributions (withdrawals) occurring after October 16, 2009, a distribution from a TFSA that is a specified distribution cannot reduce or eliminate an individual's excess TFSA amount.

This tax is similar to the tax of 1% per month on excess RRSP contributions except that in the case of a TFSA, there is no $2,000 "grace" amount. The tax of 1% on an excess TFSA amount applies from the first $1 of excess contributions.

This tax of 1% per month is based on the highest excess TFSA amount in your account for each month in which an excess exists. This means that the 1% tax applies for a particular month even if an excess amount was contributed and withdrawn later during the same month. For more information, see Example 1 - Tax payable on excess TFSA amount.

For any year in which tax is payable by the holder of a TFSA on an excess TFSA amount in their account, it is necessary to complete and file Form RC243, Tax-Free Savings Account (TFSA) Return, and Form RC243-SCH-A, Schedule A - Excess TFSA Amounts.

For information on the filing deadline for this return, see TFSA return and payment of taxes.

Effective October 17, 2009, any earnings or increase in value reasonably attributable to "deliberate excess contributions" will be considered an advantage and treated accordingly. For more information, see Tax payable on an advantage.

Forms and publications

• Form RC243, Tax-Free Savings Account (TFSA) Return
• Form RC243-SCH-A, Schedule A - Excess TFSA Amounts

Related topics

• TFSA contribution room
• TFSA return and payment of taxes
• Transfers