Last updated: October 16, 2026. Rules checked against Canada Revenue Agency (CRA) pages on that date.
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Key takeaways
– You over-contribute when your FHSA contributions plus any RRSP-to-FHSA transfers in a year go over your FHSA participation room.
– CRA charges a tax of 1% per month on the highest excess amount in that month, for as long as the excess remains.
– The fix is quick. A designated withdrawal (for excess contributions) or a designated transfer to your RRSP (for excess transfers) is tax-free. You request it with Form RC727.
– You must report the excess and pay the tax using Forms RC728 and RC728-SCH-A.
– Never make a qualifying (home-purchase) withdrawal while you have an excess. CRA warns that the 1% tax could then continue indefinitely.
What counts as an FHSA over-contribution?
CRA calls it an excess FHSA amount. You may have one if your contributions to your FHSAs and your transfers from your RRSPs to your FHSAs in a year add up to more than your FHSA participation room for that year (CRA).
The limits that matter (CRA: Participating in your FHSAs):
- $8,000 of participation room in the year you open your first FHSA
- Up to $8,000 of unused room carried forward into the next year, so the most room you can have in one year is $16,000
- $40,000 lifetime limit
The most common ways people over-contribute
- Assuming room built up before they opened an account. It doesn’t. CRA’s example “Cole” heard about the FHSA years earlier, opened one in December 2025, and put in $11,000. His room was only $8,000, so he had a $3,000 excess.
- Forgetting about an RRSP transfer. Transfers from your RRSP aren’t deductible, but they still use up FHSA room.
- Having FHSAs at two institutions. Your room is shared across all of your FHSAs. Neither bank can see what you put in at the other.
- Assuming carry-forward room is unlimited. You can carry forward at most $8,000. If you skip two years, you don’t get $24,000 of room.
- Putting a qualifying withdrawal back in. CRA says re-contributing a qualifying withdrawal counts as a new contribution. That can create an excess, and the amount is not deductible (CRA: Withdrawals).
How the 1% tax works
Under section 207.021 of the Income Tax Act, if you have an excess FHSA amount at any time in a calendar month, you pay a tax of 1% of the highest excess amount in that month (Justice Laws).
Some points to note:
- It’s monthly, and there’s no grace period. If you have an excess even briefly in a month, you owe tax for that whole month.
- The tax is based on the month’s peak. If you had a $3,000 excess for one day and $1,000 for the rest of the month, the tax is calculated on $3,000.
- It may fix itself on January 1. New participation room arrives each January 1 and can absorb the excess. CRA’s example “Carolyn” contributed $10,000 in November 2025, which gave her a $2,000 excess. She owed $20 for November and $20 for December, $40 in total. Her 2026 room then absorbed the excess, but that left her with only $6,000 of room for 2026.
A quick calculation
Say you open your first FHSA in 2026 and contribute $8,000 in March. In June, you contribute another $3,000.
- Excess from June: $11,000 − $8,000 = $3,000
- Tax per month: $3,000 × 1% = $30
- If you remove the excess in September, you owe tax for June, July, August and September, which is $120. Plus you have to file the forms.
The dollar amount is small, but the paperwork and the risk of the penalty continuing are reasons to fix it right away.
How to fix an FHSA over-contribution, step by step
Step 1: Confirm the excess
Check how much you’ve contributed and transferred at every institution. CRA’s formula is on its excess FHSA amount page. For a first-year account, it’s usually just: (contributions + transfers) − $8,000.
Step 2: Choose the right type of removal
CRA allows four ways to reduce or eliminate an excess:
| Method | When to use it | Tax on the amount removed? |
|---|---|---|
| Designated withdrawal | The excess came from contributions | No |
| Designated transfer to your RRSP or RRIF | The excess came from RRSP-to-FHSA transfers | No, and your RRSP deduction room isn’t affected |
| Taxable withdrawal | Any time | Yes, it’s added to your income |
| Account losing FHSA status | Rare | Yes, it’s added to your income |
The rules for each type (CRA):
- Only contributions: you can only make a designated withdrawal.
- Only RRSP transfers: you can only make a designated transfer.
- Both: a designated withdrawal can’t be more than your total contributions, and a designated transfer can’t be more than your total transfers. You may need both. In CRA’s example “Derek,” he transferred $12,000 and contributed $2,000, and eliminated a $6,000 excess with a designated transfer.
- You can only designate an amount up to your excess at that time. You can’t use this to take extra money out tax-free.
Step 3: Fill out Form RC727
Give your FHSA issuer Form RC727, Designate an Excess FHSA Amount as a Withdrawal from your FHSA or as a Transfer to your RRSP or RRIF. The designated amount will appear on your T4FHSA slip: box 36 for transfers and box 38 for withdrawals.
Step 4: Report the excess and pay the tax
File Form RC728, First Home Savings Account (FHSA) Return, and Form RC728-SCH-A, Schedule A, Excess FHSA Amounts. For the filing and payment deadlines, see CRA’s page FHSA taxes payable, assessments and reassessments. We haven’t stated a specific deadline here, so confirm it on that page before you file.
The big trap: buying a home while you have an excess
CRA’s withdrawals page is clear: a qualifying withdrawal does not reduce or eliminate an excess FHSA amount. If your qualifying withdrawal includes the excess, it “may not be possible” to remove it afterwards, and the 1% tax could continue “potentially indefinitely” (CRA).
Before you submit Form RC725 for your home purchase, make sure your excess is zero.
Moving money to your RRSP while you have an excess also has a limit. The most you can transfer without tax consequences is the fair market value of your FHSAs minus your excess amount.
How to avoid over-contributing in the future
- Keep one simple tracker with the date, the amount, and whether each entry was a contribution or an RRSP transfer, for every FHSA you hold.
- Check CRA My Account, but remember that it may not show transactions from the current year yet.
- Consider keeping only one FHSA to make tracking easier. You can move money between your FHSAs without using room, as long as it’s a direct transfer using Form RC721.
- Set up automatic contributions that stay within your room, for example $666 a month adds up to $7,992 a year.
FAQ
How much is the FHSA over-contribution penalty?
It’s 1% per month on the highest excess amount in each month, until the excess is gone.
Is there a $2,000 buffer like the RRSP has?
CRA’s FHSA pages don’t describe one. The tax applies to any excess FHSA amount. Don’t assume the RRSP buffer applies to your FHSA.
Will the excess go away on its own?
New participation room on January 1 can reduce or eliminate it. You still owe the 1% tax for every month before that, and your room for the new year is reduced.
Is a designated withdrawal taxable?
No. CRA says you don’t include a designated withdrawal in your income.
Can I deduct the over-contributed amount?
FHSA deductions are limited by your annual and lifetime FHSA limits. Amounts above those limits aren’t deductible in that year. See CRA’s Tax deductions for FHSA contributions.
Can my bank just reverse the contribution?
Ask your bank, but the method CRA recognizes is a designated withdrawal or transfer using Form RC727.
Disclaimer
This article is general information, not financial, tax or legal advice. FHSA calculations can get complicated, especially when there are carry-forwards, re-participation room or several accounts. Confirm your numbers with CRA or a qualified tax professional.
Sources
- CRA, What happens if you contribute or transfer too much to your FHSAs: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/what-happens-contribute-transfer-too-much.html
- CRA, Participating in your FHSAs: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/contributing-your-fhsa.html
- CRA, Withdrawals and transfers out of your FHSAs: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/withdrawals-transfers-out-your-fhsas.html
- CRA, Definitions for FHSAs: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/definitions.html
- CRA, Tax deductions for FHSA contributions: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/tax-deductions-fhsa-contributions.html
- CRA, First Home Savings Account (hub, including “FHSA taxes payable”): https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html
- Income Tax Act, s. 207.021: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-207.021.html