In 2009, the Canadian government introduced the Tax-Free Savings Account (TFSA) to help Canadians grow their savings without being taxed on that growth. The basics of the program are now pretty well known: each Canadian over the age of 18 is allowed to contribute up to $5,500 per year ($5,000 for the years of 2009-2012), withdrawals are tax-free and any withdrawals made create more contribution room for the following year. If you were at least 18 years of age in 2009, that is $36,500 of cumulative room for 2015.

There are many benefits to the TFSA, as long as you follow the rules. For example, if you over-contribute, the Canada Revenue Agency (CRA) will penalize you for the difference. The penality is 1 percent per month of the highest over-contributed amount in that month; so if you put in $5,000 too much and the CRA doesn't catch it for 6 months, you could owe $300 in penalties.

If you are worried about over-contributing, there are steps you can take to avoid making this mistake...

4 steps to avoiding a TFSA over-contribution:

1.  If you're considering opening a new TFSA , or adding to a current one, ensure you don't already hold a TFSA with your bank or another financial institution. Some representatives may not explain clearly enough that the new savings account you opened 3 years ago to "avoid some taxes" is actually a registered Tax-Free Savings Account and contributions have counted against your limit. Check your statement! We have seen some steep penalties after this innocent over-contribution.

2.  Unless you manage and monitor all of your accounts accurately and consistently, you might want to avoid having more than one TFSA. Some people are very financially organized and can handle keeping track of their accounts; others are not. There is no shame in admitting you like to keep your books simple.

3.  If you ever withdraw from a TFSA, remember that the withdrawal will not create additional contribution room until the following calendar year. For example, if you help your granddaughter with some tuition costs of $3,000 in April, that $3,000 cannot go back into a TFSA, at any institution, until the following January (assuming you had no more contribution room in April).

4.  If you want to transfer a TFSA from one institution to another, be sure that the transfer procedures are followed properly. If you were to take it upon yourself to simply withdraw your TFSA's balance and open a new one, you would be hit with the penalty - unless you wait to open your new TFSA until January. Be sure you check your contribution room beforehand, just in case. This option may be good for you if your current financial institution charges transfer-out fees.

One last thought...

You can register for online access with the CRA to keep track of your TFSA contribution room. We'd definitely recommend registering for the purposes of TFSA tracking as well as to view other CRA-based information like the status of your tax return or your RRSP contribution room.


The tax information provided above is for general information only. It is not to be relied upon as providing legal or tax advice. You are encouraged to consult with your professional tax and/or legal advisor about your particular circumstances.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of the writer’s knowledge as of the date submitted for publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors. The views expressed are those of the author and not necessarily those of the issuer of any financial products for which the author may act as a distributor.


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A Nova Scotian company, Trinity Wealth focuses on holistic financial planning. This method brings together all the pieces of your personal finance puzzle to create a plan that works with what you have now to reach your goals in the future.