Rising over-contribution fines highlight need for accurate TFSA tracking amid expanded $109,000 room
The Canada Revenue Agency (CRA) collected $166m in Tax-Free Savings Account (TFSA) over-contribution penalties in 2024 — a sharp rise from $131m in 2023 and just $15m in 2015, according to Investment Executive data reported by BNN Bloomberg.
The surge comes as more Canadians take advantage of expanded TFSA limits but struggle to track their contribution space accurately.
As of January 1, Canadians gained an additional $7,000 in contribution room, continuing the same increase seen in the past two years.
This brings the total available room for eligible Canadians who have never contributed since the program’s 2009 launch to $109,000, reported BNN Bloomberg.
The CRA’s Canada.ca website explains that contribution limits can vary depending on withdrawals and gains, as amounts withdrawn are restored as contribution room the following calendar year.
For active investors, this can make the true available space much higher than $109,000.
However, tracking these limits is not straightforward.
Annual contribution amounts have changed over time to account for inflation, and contributions made through multiple financial institutions or employers can complicate the total.
The CRA lists allowable space through its My Account portal, but as BNN Bloomberg noted, that figure may be inaccurate since financial institutions are responsible for updating the agency’s data — often not until midyear.
In 2024, some updates were delayed until June.
According to Canada.ca, TFSA holders are solely responsible for ensuring they stay within their contribution limits.
Over-contributions incur a one percent monthly penalty on the excess amount, compounding until corrected.
All contributions — including re-contributions of withdrawals — count toward annual limits, and management or investment fees paid by the holder do not qualify as contributions.
The CRA uses data provided annually by TFSA issuers, which must be submitted by the last day of February each year.
Canadians can check their TFSA contribution room through the CRA’s online portal, by phone, or by requesting a TFSA Room Statement or Transaction Summary. If discrepancies appear, they must contact their issuer to correct the record.
A BNN Bloomberg article outlined that money held in a TFSA can grow tax-free, and withdrawals can be made at any time. Investment returns — including capital gains, dividends, or fixed income — are never taxed.
By contrast, half of capital gains in non-registered accounts are taxable, and income is fully taxed. Dividends are also taxed, except for a credit on eligible payouts.
Canada.ca notes that TFSAs can hold a broad range of investments, including stocks, bonds, mutual funds, exchange traded funds (ETFs), real estate investment trusts (REITs), and some options.
However, non-Canadian dividends, such as those from US companies or funds, are subject to withholding tax by the US Internal Revenue Service.
From a tax perspective, BNN Bloomberg compared the TFSA to the principal residence tax exemption, which also allows Canadians to avoid paying tax on capital gains.
In contrast, Registered Retirement Savings Plan (RRSP) contributions and their earnings are fully taxed when withdrawn.
TFSA contributions are not tax-deductible but can complement RRSP strategies in retirement.
By strategically withdrawing from TFSAs before retirement, investors can avoid higher marginal rates and Old Age Security (OAS) clawbacks, while keeping RRSP withdrawals within lower tax brackets.
One caution highlighted by BNN Bloomberg is that withdrawn TFSA room cannot be reclaimed until the next calendar year — meaning withdrawals made late in 2025 cannot be recontributed until 2026, along with the new $7,000 limit.
