The Red Flags the CRA is Monitoring for Every TFSA Holder

Among life’s unpleasant surprises, getting a cavity, being rear-ended at a red light, or opening your CRA online portal to find an unexpected notice all rank pretty high.

For most Canadians, CRA issues are avoidable. If you file on time, remit payroll taxes properly, pay property taxes, and keep decent records, you usually stay out of trouble. And when things get unclear, an accountant is almost always worth the money.

Where investors can run into problems is with aggressive or careless use of the Tax-Free Savings Account (TFSA). The TFSA is incredibly powerful, but that power comes with rules.

The CRA actively monitors certain behaviours, and when those red flags pop up, the consequences can be painful. Here are two of the most common TFSA issues that tend to trigger CRA scrutiny.

Day trading in a TFSA

Day trading refers to frequently buying and selling securities over short periods, often with the intent of profiting from small price movements rather than long-term growth. This can include rapid trading of individual stocks, options, or other securities where positions are opened and closed within days or even hours.

The tricky part is that there is no hard-and-fast CRA rule that says a specific number of trades automatically crosses the line. The CRA evaluates this on a case-by-case basis.

In past cases, they have looked at factors such as how frequently trades occur, how short the holding periods are, whether the investor has specialized market knowledge, and whether the activity resembles a business rather than passive investing. They may also consider whether you rely on this activity as a source of income or devote significant time and effort to it.

A good litmus test is to ask yourself whether what you’re doing feels more like running a trading operation than investing for the long term. If you’re constantly monitoring screens, executing trades weekly or daily, and trying to time short-term moves, you’re likely straying into dangerous territory.

If the CRA determines your TFSA is being used to carry on a business, they can tax the income inside the account at your full marginal tax rate, completely stripping away the TFSA’s tax-free benefit.

The TFSA was designed for long-term investing, not active trading. If you want to trade frequently, a non-registered margin account is the appropriate place to do it.

Over-contributing to your TFSA

Another major red flag is over-contributing. TFSA contribution room depends on several variables: the year you became a resident of Canada, your year of birth, how much you have contributed so far, and whether you have made any withdrawals. Each year, the government adds new room. For 2026, that new room is $7,000.

As of the end of 2025, the maximum TFSA contribution room assumes you were a resident of Canada before 2010, were born in 1990 or earlier, have never contributed, and have never made a withdrawal. Under those assumptions, total room sits at $102,000. Adding the $7,000 for 2026 brings the maximum to $109,000.

Over-contributing is costly. The CRA charges a penalty tax of 1% per month on the excess amount for as long as it remains in the account. That penalty compounds quickly if it goes unnoticed.

In serious cases, especially if the over-contribution is significant or repeated, the CRA can impose additional penalties and interest. The safest approach is to track your own TFSA contributions and withdrawals rather than relying on the CRA’s portal, which can contain errors.

The post The Red Flags the CRA is Monitoring for Every TFSA Holder appeared first on The Motley Fool Canada.

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