TFSA Excess Contributions: Decline in Value

Posted on December 11th, 2025 in Domestic Tax

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A July 25, 2025, Federal Court case found that CRA’s denial of penalty tax relief on excess TFSA contributions was reasonable. Due to the loss of value in the taxpayer’s TFSA, the taxpayer could not withdraw the full amount of his excess contribution. The taxpayer noted that without relief, his only means of reducing the overcontribution was to wait for annual TFSA limit increases, currently set at $7,000, which would require approximately 16 years for the ongoing tax to be fully eliminated. CRA found, and the Court agreed, that this situation provided no basis for relief. The Courts have ruled similarly in several other cases.

However, the Court stated that it shared the taxpayer’s concerns that, in certain circumstances, prolonged and ongoing liability and inability to remedy overcontributions appear to be inconsistent with the legislator’s intent. The Court stated that the legislation, as is, operates as a perpetual tax trap for taxpayers who made a good-faith but mistaken overcontribution, and even when they act to unwind it to the best of their ability, they cannot do so because the value of their TFSA is insufficient.

Prior to making TFSA contributions, check your available contribution room on the CRA My Account portal. Ensure to adjust the CRA-provided contribution room for factors that may not yet be reflected in CRA’s balance, such as contributions made since CRA’s last update.

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Article originally published in: Tax Tips & Traps 2025 Fourth Quarter – Issue 152.