$166 Million in TFSA Errors: Could It Be Your Money?
2025-10-18
The Tax-Free Savings Account (TFSA) is probably Canadians’ favorite savings tool. You can put your money in it, let it grow, and withdraw the gains without paying tax. Simple enough… but every year, thousands of people fall into the trap of over-contributing. As a result, in 2024 alone, Canadians paid $166 million in penalties to the Canada Revenue Agency (CRA). How can you avoid becoming part of these unfortunate statistics?
How does the contribution limit work?
Each year, you get additional contribution room. In 2025, it was $7,000, and since the TFSA was created in 2009, the total can reach $102,000 if you were of legal age from the start and have never contributed. Important rules to remember: • Unused contribution room accumulates. • If you withdraw money, you only get that room back the following year. • Any excess incurs a penalty of 1% per month on the excess amount.
What are the most common mistakes?
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Having multiple TFSAs at different institutions. It is possible to open multiple TFSAs, but the limit applies to all of them. Contributing $7,000 to two different institutions is not $14,000 allowed… it’s $7,000 too much!
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Remitting a withdrawal too soon. Many people believe they can withdraw $5,000 in June and remit it in August. Wrong! This amount only becomes available again starting the following January 1st.
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Not checking your limit with the Canada Revenue Agency. Your financial institution or even your financial advisor doesn’t know about your contributions elsewhere. The only reliable place to find out your contribution room is the My Account online portal, accessible on the CRA website.
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Poor coordination in a couple: Each TFSA is individual. You cannot share your contribution room with your spouse.
Missed opportunities with the TFSA
It’s important to note that the TFSA is not just a simple savings account: you can hold stocks, bonds, ETFs, mutual funds, etc. The higher the return on your TFSA, the greater the tax advantage. It’s also important to know that unlike an RRSP, you don’t receive a tax deduction when you contribute, but you can always withdraw funds without paying tax. These valuable advantages don’t negate the fact that if you receive a notice from the CRA for over-contribution, you must act quickly: each passing month increases the tax bill.
Best practices to avoid being “taxed”
The TFSA is an interesting financial tool, but it quickly becomes complicated if you have several accounts spread across different locations. To avoid mistakes: • Don’t unnecessarily multiply your TFSA accounts. • Consolidate your investments in a single brokerage account. Ideally, work with an independent financial advisor who holds a securities license. With them, you can hold any investment from any institution in a single TFSA. This simplifies your finances, reduces the risk of errors, and maximizes your chances of growing your savings tax-free.
Author: Lionel Dossou, Wealth Advisor, Team Major at iA Private Wealth Inc.