How does CRA find out that I've over-contributed to my TFSA?

CRA finds out through the same information-reporting system that financial institutions already use to report TFSA contributions and withdrawals for every account, for every TFSA holder, automatically. Your bank, credit union, or investment firm reports this activity to CRA as a matter of course, and CRA matches what comes in against the contribution room it has calculated for you individually.

This means an over-contribution generally isn't something that depends on you self-reporting it, or on being flagged for an audit in the traditional sense - it's a systematic, ongoing data-matching process that runs in the background regardless of whether anyone at CRA is looking at your file specifically. Because of this, assuming an over-contribution will simply go unnoticed if you don't mention it is a mistake; the matching happens whether or not you bring it up yourself. If you're not sure whether you've over-contributed, checking your available TFSA room through your CRA online account is a sensible first step, since CRA is tracking the same numbers on its end regardless of what you do, and finding out on your own terms is considerably better than being notified after the fact.