TFSA: 1% a month, from the first dollar
If you put more into a TFSA than your room allows, the CRA charges 1% of the extra amount for each month it stays in the account. The tax uses the highest excess in each month. Take it out the next day and you still owe 1% for that month.
The CRA doesn't always tell you before it assesses the tax, and you have to file a TFSA return to report the excess.
The most common cause is putting a withdrawal back in the same year. A withdrawal only comes back as room on January 1 of the next year.
RRSP: a $2,000 cushion, then 1% a month
RRSPs have some slack. You can be up to $2,000 over your deduction limit without any extra tax. Above that, the amount over the $2,000 is taxed at 1% a month.
If you owe the tax, you have to file a separate return for RRSP excess contributions and pay within 90 days after the end of the year. Filing late adds a penalty.
Money in the $2,000 cushion isn't deductible until you have room for it.
FHSA: the same 1% a month
An FHSA also has a 1% monthly tax on any amount above your participation room.
How to stop the tax
- Take the excess out as soon as you notice it. The tax runs until the month the excess is gone, or until new room covers it.
- For a TFSA, new room on January 1 can also absorb an excess.
- If the over-contribution was a reasonable error and you fixed it quickly, you can ask the CRA to waive or cancel the tax.
Avoid it in the first place
Check your room before you contribute, and keep your own record of what you put in and take out during the year. The CRA's figures may not include this year's activity yet.
Where to find your contribution room