Excess Contributions: TFSA

Individuals who contribute excess amounts into their TFSA are subject to a penalty tax of 1%/month on the excess amount for each month that the TFSA is overcontributed. However, CRA has the discretion to waive this penalty tax if the excess amount resulted from reasonable error and the excess contribution, plus any income or capital gains reasonably attributable to them, is withdrawn without delay.
CRA recently considered whether relief on this penalty tax
could be provided where the value of the TFSA had reduced
to nil. They opined that, as the excess contribution could
not be withdrawn without delay, they would not have the
discretion to waive the penalty tax. As such, the penalty tax
would continue to apply until the individual accumulated
enough additional TFSA room to cover the excess

Under the facts above, CRA does not
believe they have the discretion to waive the penalty tax on an excess TFSA contribution. Even where they have that discretion, they often refuse to waive the tax. Care
should be afforded to ensure not to make excess TFSA
contributions, and if an error is made, it should be
corrected as soon as possible.

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