Can I fix a TFSA over-contribution by withdrawing the extra amount right away?

Withdrawing the excess amount as soon as you discover an over-contribution is genuinely the most effective way to limit the damage, but it's important to understand exactly what it does and doesn't fix. Withdrawing promptly stops the monthly penalty tax from continuing to accrue going forward, since the excess is no longer sitting in the account once it's out.

What withdrawing doesn't do is erase the penalty tax that already accrued for the months the excess was sitting in your TFSA before you caught it and withdrew it. In other words, a prompt withdrawal caps your exposure rather than reversing it entirely - if the excess sat there for a couple of months before you noticed, you'll generally still owe penalty tax for that period, even though you've now fixed the ongoing problem. This is a common point of confusion, because people sometimes assume fixing the over-contribution quickly means no penalty applies at all. It's still worth withdrawing immediately once you discover the issue, since every month you delay adds more to what you owe, but don't be surprised if CRA still assesses tax for the period before the withdrawal.