What happens if you over contribute to your tfsa

Any income earned in this account is generally tax-free. In addition, withdrawals from the account are also tax-free — meaning the growth on TFSA investments is never taxed. The allowable contributions to the account are limited to a specific amount set annually by Canada Revenue Agency CRA.

If the contributions within a year, plus unused portions from prior years, less withdrawals, are in excess of the allowable limit, the excess balance in the account is subject to penalty. Your contribution room begins accumulating in the year in which you turn As long as the contributions you make toward your account do not surpass the limit of your account, you will not be taxed on any of the income i.

The CRA will send you a notice if they identify that you have over-contributed, proposing a TFSA return showing the penalty fee that will be accrued on the account if the over-contribution is not withdrawn. Perhaps you unintentionally over-contributed, because you believed you had more contribution room available than you actually did.

This advantage tax continues to apply until you withdraw the deliberate over-contribution AND any associated income and capital gains from your TFSA.

How would the CRA know whether an over-contribution is a deliberate over-contribution or a mistake? Ultimately, understanding the implications of being over-contributed ensures you can act quickly when an issue is identified. Where you are unsure of your contribution limit, the best source to confirm your available room is with the CRA themselves — typically through the My Account portal via their website.

A couple of notes to keep in mind:. Written and published by IG Wealth Management as a general source of information only, with reliance on information published by the CRA, believed to be accurate as of the date of publishing. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on up to date withholding rules and rates and on your specific circumstances from an IG Consultant.

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