All the Numbers

Over-contributions to a TFSA or RRSP

From the All the Numbers wiki · Savings accounts

Each registered account has a limit on how much you may put in: your TFSA room or your RRSP deduction limit. Contributing more than the limit is an over-contribution. The tax is charged for every month the excess stays in the account, so it grows the longer it is left.

The rules

  • TFSA. The tax is 1% of the highest excess amount in each calendar month.[1] There is no cushion. Withdrawing the excess stops the tax going forward; the amount withdrawn is added back to room only the following January, as for any TFSA withdrawal.
  • RRSP. The tax is 1% of the cumulative excess amount at the end of each month.[2] The excess is what you have put in and not deducted, over your unused deduction room, plus this year's new room, plus a $2,000 cushion that applies once you were 18 in a preceding year.[3] The cushion is free of the tax, but it is not deductible either.
  • An RRSP excess stops being taxed when new room arrives, when you deduct it in a later year, or when you withdraw it.
  • The First Home Savings Account and the RESP have their own excess rules, also 1% a month. They are not covered here.

What the planner does

The planner does not model the penalty. A contribution you schedule is cut back to the room left that month, and the part the room refuses stays in cash instead of being posted as an excess.[4] A plan therefore shows what you can do within the rules. It does not show what breaking them would cost, and it does not use the RRSP cushion.

The engine can tax an excess when a contribution is marked as allowed to exceed room. It charges the 1% a month from cash, waives the first $2,000 of an RRSP excess, and stops when room, a deduction or a withdrawal absorbs it. The planner never marks a contribution that way.

What neither does

Waivers the CRA can grant for a reasonable error, the T1-OVP return on which the tax is reported, and the election to refund undeducted RRSP contributions are not modelled.

See also

  • Auto-allocation · When switched on, money left after spending and your own contributions is placed for you down a priority list — FHSA, then RRSP, then TFSA, then non-registered by default — each account taking what its room allows. Every dollar it moves is shown, by account, on each month and year.
  • Contributions the plan could not fund in full · Each month's leftover joins cash, and each contribution takes what cash can give it, in the order the accounts are listed. A contribution that cash cannot cover is funded in part rather than by an overdraft that does not exist, and the plan says so.
  • Money you have not told the plan to invest · Income the plan does not spend and you have not allocated to an account is held as cash, earning the posted savings rate. It is not swept into an investment account, and it never over-fills a registered one.
  • RESPs and the education grant · Contributions attract a 20% government grant, up to $500 a year, and $7,200 for a child's lifetime, up to a $50,000 contribution limit. Growth and grants come out taxed in the student's hands, at a rate that is usually near zero.
  • RRSP room, deduction and withdrawals · Room accrues at 18% of earned income up to the annual cap, contributions earn a deduction refunded the following April, and withdrawals are taxed as income. The plan assumes you start with no carried-forward room unless you say otherwise.
  • TFSA contribution room · Room starts accruing the year you turn 18, not the year you open an account, and it never expires. Withdrawals come back the following January. Limits past 2026 have not been announced, so the plan projects them by the rule the Act sets and says so.
  • The First Home Savings Account · $8,000 a year with one year of carryforward and $40,000 for life, deducted from income and withdrawn tax-free for a first home. The refund is credited the following April, and the account winds up into an RRSP if it is never used.

References

  1. ↑ITA 207.02 ("1% of the highest such amount in that month"); 207.01(1) "excess TFSA amount" · Part XI.01 tax: 1% of the highest excess TFSA amount in each calendar month · 1% · effective 2009-01-01
  2. ↑ITA 204.1(2.1) ("pay a tax under this Part equal to 1% of that cumulative excess amount") · Part X.1 tax: 1% of the cumulative excess amount at the end of each month · 1% · effective 1991-01-01
  3. ↑ITA 204.2(1.1) C ("$2,000") · RRSP cumulative excess amount: undeducted premiums over (unused deduction room + current-year new room + $2,000 where the individual attained 18 in a preceding year) · $2,000 · effective 1996-01-01
  4. ↑CRA — TFSA/RRSP/FHSA over-contributions are taxed 1% a month (ITA 207.02, 204.1, 207.021) · A contribution event flagged contributes no more than the TFSA/RRSP/FHSA room left that month (deducting no more than it contributed); what the room refuses stays in cash, never posted as an excess · effective 2026-09-20