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This is TFSA Trouncers, a series that profiles how Canadian investors invest their tax-free savings accounts.
Zack married into money in 2008 when he was 27 years old and working as a chef in Manitoba. He was happy to do the cooking at home and his wife was quite happy to let him take care of it. After one particularly tasty meal in 2010, she agreed to his request for some money to invest in stocks.
Zack said that his friend was a good stock picker and that they could make some money from his advice. But he didn’t mention that he also had some investment ideas of his own, sourced from penny-stock newsletters.
A margin account was set up for trading stocks, as was a tax-free saving account that he would contribute the maximum amount each year. Having heard a co-worker’s story about “riding a stock to the moon,” he was excited about the prospect of making his fortune too, using the YOLO (You Only Live Once) investment approach of taking concentrated positions in speculative stocks.
Indeed, in 2015 there was a big score in his TFSA. He was trouncing the account. So he thought. In the end, Zack got trounced, instead. A real beat-down. One might even say it was brutal.
How a farmer and his wife grew their TFSAs to $2.3-million
The thrashing was set in motion in 2018 when he withdrew $100,000 from his TFSA to start a business but changed his mind later that year and redeposited the money into his TFSA. He then bought more shares in the two microcap stocks in his account.
Six months later, he received a notice from the Canada Revenue Agency (CRA) that he had overcontributed to his TFSA by $100,000. Zack was aware that withdrawals free up contribution room but he was not aware the room is only reinstated in the following calendar year.
The notice also mentioned that the penalty was 1 per cent a month on the overcontribution for as long as it remained in his TFSA. If he had withdrawn it after reading the notice, the penalty would have “only” been $6,000 for the six months.
However, in the time it took for the CRA notification to arrive, the money invested in the two penny stocks had vaporized. One stock was delisted. The other crashed hard and was not trading.
The money in his TFSA – including the overcontribution – had disappeared, which meant he was unable to take out an overcontribution that no longer existed. But as CRA confirmed, he still had to pay interest on that amount.
Moreover, all of his accumulated TFSA contribution room had been lost as a result of the microcaps blowing up. The only way to stop the interest payments was to make the maximum TFSA contribution each year (currently $7,000) and gradually pay down an amount equal to what he had previously overcontributed. A long and expensive runway lay ahead.
It didn’t seem right to be in such a predicament. First, Zack thought it was unfair for the CRA to take so long to inform him of the overcontribution that he had unwittingly made. “It looked like they wanted to rack up some interest payments,” he said. Second, there was the penalty. “To me, it seemed kind of odd and cruel to have to pay interest on money that no longer exists.”
The tax collectors had an explanation for the first complaint. Financial institutions administered the TFSAs and the CRA had to wait for them to send in their annual reports on their clients’ TFSAs. They arrived several months after the calendar year, so if the overcontribution was made in the fall, the notice sent out to a TFSA holder would take about six months.
As for the second complaint, Zack pleaded for some relief but the CRA did not budge. Some lawsuits in the Tax Court of Canada and Federal Court have since confirmed the CRA’s position (as of 2025). “The courts were sympathetic that an investor could get caught in a tax trap but in their view, tax law could not provide any relief,” Zack added.
What an expert says
We asked Adrienne Power, a financial adviser with Edward Jones for her thoughts on Zack’s TFSA experience.
Zack’s story is a powerful reminder that a TFSA rewards patience and planning over speculation, and that a financial plan should ultimately help support the life a person wants to live.
Zack’s trouble began with two interwoven choices. First, he pursued the goal of building wealth quickly rather than steadily over time. He concentrated his account in a handful of speculative microcap stocks instead of following the diversified, long-term approach Edward Jones advocates through a mix of investments like GICs, ETFs, mutual funds, stocks, bonds or a managed portfolio.
Second, he withdrew $100,000 and redeposited it in the same year. The rule he missed is one of the most misunderstood in Canada: Withdrawals restore contribution room only in the following calendar year, not the year the money is withdrawn.
That recontribution created a $100,000 overcontribution, subject to a 1-per-cent monthly penalty while the excess remained in the account. When the microcap holdings collapsed, Zack lost the capital and the funds needed to withdraw the overcontribution, leaving him with a long, difficult path forward.
If Zack were my client, I would first help him stabilize the account and rebuild his portfolio on a diversified foundation, ensuring his strategy aligns with his time horizon, objectives and comfort with risk.
I would also consider how his TFSA could work alongside an RRSP, including tax-deductible contributions in higher-income years, while preserving the flexibility of TFSA withdrawals, which do not affect income-tested benefits such as Old Age Security.
Finally, naming his spouse as successor holder can allow the TFSA to pass outside the estate without affecting his spouse’s own contribution room. Zack’s frustration is understandable. He cannot undo what happened, but a thoughtful plan can help him restore confidence and put his money back to work in support of the people, experiences and possibilities that give it meaning.
Larry MacDonald is the author of The Shopify Story and blogs at Shopify’s Journey.