Example 1

In 2015, Judy begins the year with a TFSA contribution room of $10,000.

Judy's contributions and withdrawals for 2015 are the following amounts:

Judy's first two contributions, in April and May, reduced her TFSA contribution room to zero. Since her June withdrawal does not get added back to her contribution room until the following year, her August contribution caused an excess TFSA amount of $2,000 for that month. Her September withdrawal of $1,500 would be considered a qualifying portion of the withdrawal in computing her highest excess amount for the following month, October. An excess TFSA amount of $500 remains until the end of the year and she will have to pay a 1% tax for the months of August to December.

Judy's tax would be calculated as follows:

• Highest excess TFSA amount per month for August and September = $2,000. Tax = 1% per month on the highest excess amount = $2,000 x 1% x 2 months, which is $40.
• Highest excess TFSA amount per month for October to December = $500. Tax = 1% per month on the highest excess amount = $500 x 1% x 3 months, which is $15.

Judy's withdrawals from her TFSA will be added to her TFSA room for 2016.

Example 2

Since opening his TFSA in 2012, Gilles, a 21-year-old Canadian resident, contributed $20,000 on June 4, 2012 and another $5,500 on February 6, 2013. On March 3, 2014, he contributed an additional $7,500. Since Gilles' TFSA contribution room at the beginning of 2014 was only $5,500 (the TFSA dollar limit for that year), his contribution of $7,500 on March 3 resulted, as of that date, in an excess TFSA amount of $2,000.

On May 17, 2014, Gilles withdrew $3,200 from his TFSA. The qualifying portion of this withdrawal was $2,000, since this was the maximum amount that eliminated the excess amount in his account.

No part of the $1,200 portion of his withdrawal (the full amount of $3,200 less the qualifying portion of $2,000) could have been used in the year to reduce any later excess TFSA amount. In other words, if Gilles had made a new contribution of $1,000 on July 6, 2014, it would still have resulted in an excess TFSA amount of $1,000, as of that date, even though Gilles previously withdrew $1,200 more than his excess TFSA amount on May 17, 2014.

Example 3

Using the previous example, if Gilles had withdrawn $900 on May 17, 2014 (instead of withdrawing $3,200), the qualifying portion of the withdrawal would have been the full $900, since the entire amount reduced (but did not fully eliminate) his previously determined excess TFSA amount of $2,000.

In this case, an excess TFSA amount of $1,100 would remain in his account as of the May 17 withdrawal (the previously determined excess TFSA amount of $2,000 minus the $900 qualifying portion of the withdrawal). If, in this scenario, Gilles had made a new contribution of $1,000 on July 6, 2014, it would result in an excess TFSA amount, as of that date, of $2,100 ($1,100 + $1,000).

If, at any time in a month, you have an excess TFSA amount, you are subject to a tax of 1% on your highest excess TFSA amount in that month.