What Happens If a TFSA Is Over-Contributed at Death in Canada?

Executors sometimes discover that the person they are acting for put more into their TFSA than their contribution room allowed. That excess does not disappear at death. It can leave a tax bill for the deceased's final period and, in some cases, a problem for the person who inherits the account.

This article walks through the 1% monthly tax, what the legal representative files, and how the excess affects a surviving spouse. Exact calculations are worth confirming with an accountant.

This article covers Canadian federal tax law, which applies in every province.

What an excess TFSA amount is

An excess TFSA amount arises when contributions go beyond what the holder was allowed to contribute. For a deceased holder, the excess is taxed at 1% per month for each month it stays in the account, up to and including the month of death. The same monthly rate applies to a non-survivor beneficiary who contributes received amounts beyond their available room, for as long as the excess remains.

The tax is not a one-time charge. It builds up for each month the excess sits in the account, so the sooner the amount is identified, the better the executor can understand the total exposure.

The tax on the deceased

The deceased holder's excess TFSA amount is taxable to the deceased at 1% per month for each month it stays in the account, up to and including the month of death. The legal representative files Form RC243 and Schedule A (RC243-SCH-A).

The tax-free treatment that normally applies to a TFSA at death covers the value of the account at death for beneficiaries, and beneficiaries generally pay no tax on amounts up to that fair market value. Fair market value means the highest price, expressed in money, obtainable in an open and unrestricted market between informed, prudent parties dealing at arm's length, neither under compulsion to buy or sell. Earnings made after the date of death and before the estate is settled are taxable, because the tax-free part is limited to the value at death. The excess is a separate issue that attaches to the deceased. How the estate's own tax treatment applies in detail is a point to confirm with an accountant.

• Work out the month the excess first arose.
• Count each month up to and including the month of death.
• Apply 1% per month to the excess for those months.
• File Form RC243 with Schedule A as the legal representative.

What it means for a surviving spouse

A successor holder is the surviving spouse or common-law partner named in the TFSA contract or in the will, and on the holder's death they immediately become the new holder and take ownership of the TFSA. Normally, the deceased is then not considered to receive an amount from the TFSA on death, and the account continues as a TFSA. The successor's own contribution room is not affected, provided the deceased had no excess amount.

Exception: if the deceased had an excess TFSA amount, the successor holder is treated as making a contribution equal to the excess on the first day of the month after death. If that creates an excess in the successor's accounts, it is taxed at 1% per month while it remains.

A direct transfer between a successor holder's TFSAs does not affect their available contribution room, and with several TFSAs the room applies to all accounts collectively. That means the successor should look at total room across every account, not just the inherited one.

Exception: Quebec does not recognize the successor holder designation for TFSAs, though a Quebec surviving spouse can still make an exempt contribution.

Other beneficiaries and exempt contributions

A survivor who receives TFSA payments as a beneficiary can contribute them to their own TFSA as an exempt contribution that does not affect their own available contribution room. The amount must be received and contributed by December 31 of the year following death, and the total generally cannot be more than the TFSA's value at death. Exception: starting January 1, 2026, earnings accrued in the TFSA after death, up to the end of the rollover period, can be designated as exempt contributions. The survivor sends Form RC240 to the CRA within 30 days of making the contribution, unless the CRA allows a later date.

Exception: no exempt contribution is possible if the deceased's TFSA had an excess TFSA amount, or if payments are received by more than one survivor. The legislation limits the amount to nil or a greater amount the Minister allows where there was an excess.

A non-survivor beneficiary, such as a child, may contribute received amounts to their own TFSA only if they have available room, and cannot designate any amount as exempt. Anyone receiving money from an over-contributed account should check their own room first.

If no successor holder or beneficiary is named, the TFSA assets are directed to the deceased holder's estate and the will governs distribution.

What to do next

• Ask the TFSA issuer for the full transaction history and the value at the date of death.
• Check whether a successor holder, a beneficiary or no one was named, since that decides who receives the account.
• Identify the first month the excess arose and count months through the month of death.
• Prepare Form RC243 and Schedule A (RC243-SCH-A) as legal representative.
• Tell any surviving spouse or beneficiary about the excess before they move funds.
• Have an accountant or lawyer review the numbers, particularly if the excess is large or the estate is complex.

Frequently asked questions