Background
Sepidehsadat Adelkhou had $29,842.72 in unused TFSA contribution room at the end of 2023. In April 2024, she withdrew $27,000 and re-contributed it in May. In September 2024, she again withdrew $27,000 and re-contributed it on September 10. The annual TFSA contribution limit for 2024 was $7,000. The appellant argued the funds were her own savings being recycled and that she had not intended to overcontribute.
The Minister of National Revenue assessed an “excess TFSA amount” of $17,157.28 for September through December 2024, imposing a tax of 1% of that amount per month ($171.57 × 4 months = $686.29) under section 207.02 of the Income Tax Act. A late-filing penalty of $34.31 was also assessed because the appellant failed to file the required return by the June 30, 2025 deadline.
The Court’s Holding
Justice Perry Derksen dismissed the appeal. The court applied the statutory formula in section 207.01(1) for calculating excess TFSA amounts: A−B−C−D−E. For the relevant months, this yielded: $54,000 (combined re-contributions in A) minus $29,842.72 (unused room at end of 2023 in B) minus $0 (no 2023 distributions in C) minus $7,000 (2024 annual limit in D) minus $0 (no qualifying distributions in E) = $17,157.28. The excess persisted from September through December 2024.
The court rejected the appellant’s argument based on intent and the recycled nature of her funds. Parliament’s TFSA rules, as enacted, do not permit re-contribution of withdrawn funds in the same calendar year without sufficient contribution room. Withdrawals can only be re-contributed in the year following the withdrawal. The court found the May re-contribution did not create an excess because contribution room was available then, but the September re-contribution exceeded available room, triggering the excess TFSA amount liability. The late-filing penalty of 5% was also upheld as proper under section 162(1) of the Income Tax Act.
Key Takeaways
- TFSA re-contributions in the same calendar year are only permitted if sufficient contribution room exists; the formula does not credit current-year withdrawals.
- Withdrawn TFSA funds can only be re-contributed in the calendar year following the withdrawal if room was exceeded.
- A 1% monthly tax applies to excess TFSA amounts regardless of taxpayer intent or whether funds are recycled personal savings.
- Failure to file the required TFSA return triggers a 5% late-filing penalty on the tax owed.
- The Tax Court lacks jurisdiction to cancel the tax; only the Minister may exercise discretionary waiver under section 207.06(1) or cancellation of penalties under section 220(3.1).
Why It Matters
This decision reinforces that TFSA compliance is strictly rule-based and leaves no room for taxpayer intent or equitable arguments about recycled funds. Canadian taxpayers and advisors must carefully plan TFSA contributions and withdrawals, ensuring they understand the interaction between current-year contribution limits, unused room from prior years, and the timing of re-contributions. The case clarifies that contributions in the current year are measured against prior-year room, not offset by current-year withdrawals, making timing critical.
For practitioners, the decision also clarifies the limits of Tax Court jurisdiction: appeals challenging the assessment itself will succeed or fail based on the statutory formula, but requests for relief based on fairness or waiver of the tax or penalties must be directed to the Minister through the discretionary powers granted by Parliament. This distinction is essential for advising clients on available remedies when an excess TFSA amount exists.