A Canadian who lived abroad thought she followed TFSA contribution rules, but CRA surprised her with a penalty tax

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The taxpayer’s husband had a work contract in Louisiana and the couple had lived there for several years, meaning her TFSA contribution eligibility only started in 2017. This meant that for 2022 she was allowed to contribute $35,000, being $5,500 annually in 2017 and 2018, and $6,000 annually from 2019 through 2022. She was therefore overcontributed in 2022 by $15,000, being the $50,000 she contributed in November of that year less her $35,000 of room.

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In June 2023 the CRA sent the taxpayer an “education letter,” informing her that she had contributed an excess of $15,000 to her TFSA in 2022. The letter advised her that excess contributions are normally subject to a one per cent monthly tax, but that the CRA would not tax her on her 2022 excess contributions if she withdrew the excess contributions.

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While the taxpayer acknowledged having received the CRA’s education letter, she made no withdrawals as a result of the letter.

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In July 2024 the CRA assessed taxes for the overcontribution to her TFSA for the 2023 taxation year in the amount of $4,820, along with late-filing penalties of $241, and arrears interest of $20, bringing the total balance owing to $5,081.

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In January 2025 the taxpayer withdrew $45,053 from her TFSA and wrote the CRA a letter stating that she recently found out that she owed the government more than $5,000, “an amount that completely surprised me.” When she contacted the CRA for an explanation, she was told that the amount was due to overcontributions to her TFSA. She was writing to request relief from the overcontribution tax, penalty and interest.

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She explained that she had “initially misunderstood how TFSAs work, thinking they had a one-time lifetime contribution limit for Canadian citizens.” She explained that when her father died and she inherited some money, she invested most of it into what she believed to be her lifetime TFSA limit, and that, while living in the U.S, she and her husband had maintained their Canadian citizenships and kept their home in Canada.

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She testified that she “could not find clear information on the CRA website indicating that one must be both a citizen and a resident of Canada to use the full TFSA contribution room.”

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Ultimately, the CRA refused the request to waive the tax, as her removal of excess TFSA contributions “did not occur within a reasonable time frame.” As a result, the sole issue before the Federal Court was whether the CRA’s decision refusing to cancel the tax on the excess TFSA contributions for 2023 tax year was unreasonable.

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While the taxpayer did, indeed, withdraw her overcontributions, she only did so in 2025 which was more than a year and half after receiving the June 2023 education letter. The CRA expects that overcontributions are to be withdrawn “without delay,” which the agency generally interprets as being withdrawn within 30 days of the taxpayer being aware of the overcontribution.

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As a result, the judge saw no reason to conclude that the CRA’s decision to deny relief was unreasonable, and upheld the tax, penalties and interest.

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Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. [email protected].

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