CRA indicates that there is no requirement to distribute income on a TFSA overcontribution where there has been 1% monthly tax but no advantage tax
CRA confirmed that the only adverse consequence of a TFSA over-contribution is the 1% monthly tax under s. 207.02 on the highest “excess TFSA amount” for each month (subject to such penalty tax being waived under s. 207.06(1)) – unless there is a “deliberate over-contribution,” which CRA indicated referred “to a TFSA contribution knowingly made by an individual in excess of their TFSA contribution limit, generally with a view to generating a rate of return sufficient to outweigh the cost of the 1% tax.” Although it would be a mistake to give the precise wording of a Technical Interpretation the same weight as that of a Folio, it is interesting that this constitutes a restrictive (i.e., favourable) interpretation of the statutory definition of a “deliberate over-contribution.”
CRA also confirmed that there is no requirement to remove any income or capital gains that are attributable to an excess TFSA amount, except where the 1% tax is waived or in the deliberate over-contribution situation.
Neal Armstrong. Summary of 14 July 2020 External T.I. 2020-0843071E5 under s. 207.01(1) - deliberate over-contribution.