The cost of TFSA contributions for non-residents

By Curtis Davis | September 27, 2023 | Last updated on October 12, 2023
3 min read

Clients leaving Canada to live in another country will usually have a lot on their minds, so it may be a relief that keeping a TFSA open as a non-resident is permitted from a Canadian tax perspective. However, clients should be reminded that no new contribution room accumulates and that they shouldn’t make contributions while they are non-residents.

Any TFSA contribution made while a client is a non-resident of Canada for tax purposes is subject to a 1% penalty tax per month until the full amount is withdrawn. This applies to the entire contribution made by a non-resident, and continues to apply to the full amount until it’s withdrawn entirely or the individual becomes a Canadian resident, whichever comes first. Partial withdrawals don’t reduce the amount used to calculate the penalty tax.

Case Study

Noah is a non-resident of Canada. Prior to leaving Canada in 2021, he had $10,000 of unused TFSA contribution room. In January 2022, Noah got a larger-than-expected bonus at work. He decided to contribute $20,000 to his TFSA that same month. On March 15, 2022, he withdrew $5,000 from his TFSA to buy a car. On Dec. 10, he withdrew the remaining $15,000 after learning from a colleague that he shouldn’t have contributed to his TFSA as a non-resident. He wants to determine what his penalty tax will be.

Chart 1: Non-resident penalty calculation

Months Non-resident contribution amount Number of months Penalty tax
January – November $20,000 11 $2,200

For non-resident contributions, the 1% penalty tax applies to the full non-resident contribution until it’s fully withdrawn. Since Noah’s contribution wasn’t fully withdrawn until December, the penalty applies on his total contribution for 11 of the 12 months (the month when the withdrawal is made doesn’t count).

The result is a penalty tax of $2,200 ($20,000 x 11 months x 1%).

Overcontribution penalty

As most advisors know, clients are also penalized for contributing too much to their TFSAs. That penalty is 1% per month on TFSA contributions that exceed a client’s TFSA contribution room for the year. The penalty tax applies to the highest excess amount for the month and is reduced by withdrawals.

For non-residents, this creates the possibility of being penalized twice if they contribute to their TFSA and some or all of the contribution exceeds their contribution limit.

Remember that Noah contributed $20,000 to his TFSA in January 2022. In addition to contributing as a non-resident, Noah exceeded his TFSA contribution limit by $10,000. As a result, he will also be penalized for this excess amount.

Unlike the non-resident calculation, Noah’s withdrawals reduce the amount used to determine the penalty (see Chart 2, below). His March withdrawal of $5,000 reduces the highest excess amount for April to December. His December withdrawal eliminates the excess altogether. (Unlike the non-resident contribution penalty, the month when the withdrawal is made still counts for overcontributions.)

Chart 2: Excess contribution tax calculation

Months Highest excess amount in TFSA Number of months Penalty tax
January – March $10,000 3 $300
April – December $5,000 9 $450
Total 12 $750

Combined with the non-resident contribution penalty, Noah’s total penalty related to his 2022 TFSA contribution is $2,950.

Waiver of tax payable

It may be possible to obtain a waiver of all or part of the penalty tax at the discretion of the Minister of National Revenue. In these cases, it must be demonstrated to the satisfaction of the minister that:

  • The tax liability came as a consequence of a reasonable error, and
  • The withdrawal of the amount has been made without delay equal to at least the contribution plus the income or capital gains earned on it.

A waiver is far from guaranteed and is based on the specific facts of each case. However, if the appropriate steps are taken to remove the amounts in question, this could be worth pursuing, especially if it can be shown that a reasonable error occurred.


Clients who become non-residents of Canada may be tempted to keep their TFSA account intact. This is especially true if their long-term plan is to re-establish Canadian residency in the future. There aren’t any Canadian tax issues associated with keeping the TFSA open in these cases, but there could be tax obligations and reporting requirements related to the TFSA in their new country of residence. Most importantly, clients must resist the temptation to make contributions while non-residents of Canada. Doing so can be costly.

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Curtis Davis

Curtis Davis, FCSI, CFP, TEP, is director for tax, retirement and estate planning services, retail markets at Manulife Investment Management.