FHSA over-contribution: the penalty and the 15-year clock

An excess FHSA amount is taxed at 1% per month on the highest excess amount in that month, and it keeps running until the excess is gone. There is no $2,000 cushion here; the FHSA is not the RRSP.

Running alongside it is a second clock that has nothing to do with penalties: the account has an end date fixed on the day you opened your first one.

The tax, and what “highest in the month” means

The CRA: “Generally, you have to pay a tax of 1% per month on the highest excess FHSA amount in that month. You will continue to pay the monthly 1% tax until the excess FHSA amount is eliminated” (canada.ca).

“Highest in the month” is the part that decides the bill. Removing part of an excess partway through a month does not reduce that month’s charge, because the month is measured at its peak.

The CRA’s own worked case

Cole opens an FHSA in December 2025 without knowing that the participation room for the year he opens his first account is $8,000. He transfers $5,000 in from his RRSP and contributes $6,000, so $11,000 in total. The CRA works it out: $11,000 against $8,000 of room leaves an excess FHSA amount of $3,000, and the December tax is $3,000 x 1% = $30 (canada.ca).

The CRA’s second case shows the other way an excess resolves itself. Carolyn contributes $10,000 in November 2025 against $8,000 of room, leaving a $2,000 excess, and finds out in January when her participation room for the next year comes in at $6,000 rather than $8,000 (canada.ca). The room absorbed the excess, and the price was a year of contribution capacity.

Note what is being counted in Cole’s case: contributions and RRSP transfers in together. The transfer is not a separate bucket.

Clearing it deliberately

Two removal routes, both named. A designated withdrawal takes the excess out of the account; a designated transfer moves it to an RRSP or RRIF. Both run on Form RC727, and neither amount has to be included as income (canada.ca).

Reporting is a separate return: an excess FHSA amount goes on Form RC728 with its Schedule A (canada.ca). Which form belongs to which account is laid out in RC243 or T1-OVP: which form your situation needs.

The trap that has no exit

Buying the home does not fix this. The CRA warns in bold terms: “A qualifying withdrawal does not reduce or eliminate an excess FHSA amount. Before making a qualifying withdrawal, make sure that you do not have an excess FHSA amount. If you make a qualifying withdrawal that includes an excess FHSA amount, it may not be possible to reduce or eliminate your excess FHSA amount. You may still be subject to a tax of 1% on the highest excess FHSA amount in the month, for each month the excess remains, potentially indefinitely” (canada.ca).

“Potentially indefinitely” is the CRA’s own phrase, and it is the sharpest sentence on any of these pages.

The 15-year clock, which is separate

The account closes on a schedule set when it opened. The CRA: “Your maximum participation period begins when you open your first FHSA and ends on December 31 of the year in which the earliest of the following events occur: the 15th anniversary of opening your first FHSA; you turn 71 years of age; the year following your first qualifying withdrawal from your FHSA” (canada.ca).

The clock starts at opening, not at the first contribution. The CRA’s own example makes the point: Amr opens in August 2025 and does not contribute until 2028, and his participation period still ends December 31, 2040 (canada.ca).

Miss the end of it and the account loses its status, with the CRA requiring the fair market value at December 31 to be included in income for that year (canada.ca).

Using the FHSA alongside an RRSP withdrawal for the same home is covered in can you use the FHSA and the HBP together.

Two dates and one running total

Hudson Bay Finance makes a contribution-room tracker that keeps a dated record of FHSA contributions and RRSP-to-FHSA transfers together, which is how the CRA counts them. FHSA tracking is part of the one-time $19.99 unlock, alongside RRSP and RESP.

Common questions

How much is the FHSA over-contribution penalty?

The CRA states you generally pay a tax of 1% per month on the highest excess FHSA amount in that month, and you keep paying it monthly until the excess is eliminated. Unlike the RRSP, there is no $2,000 cushion.

What is the FHSA 15-year rule?

Your maximum participation period begins when you open your first FHSA and ends on December 31 of the year the earliest of three events happens: the 15th anniversary of opening your first FHSA, your 71st birthday year, or the year following your first qualifying withdrawal.

How can I clear an excess FHSA amount?

The CRA says the excess is reduced or eliminated by your new FHSA participation room on January 1 of the following year, or by removing amounts from your FHSAs, which is done as a designated withdrawal or designated transfer on Form RC727.

Does a qualifying withdrawal to buy a home clear an excess?

No. The CRA states that a qualifying withdrawal does not reduce or eliminate an excess FHSA amount, and warns that after such a withdrawal it may not be possible to eliminate the excess at all.

Related situations

• You got a CRA letter about a TFSA over-contribution
• Asking the CRA to waive a TFSA penalty: what the request has to show
• RRSP over-contribution: the $2,000 cushion and what sits past it
• RC243 or T1-OVP: which form your situation needs
• All situational answers, including the other when the contribution already happened pages