The client
A Terrace couple wanted to roll $27,000 of higher-interest credit-card and personal-loan debt into a refinance of their existing home. The debt-consolidation refinance itself was straightforward -- the surprise came from a document nobody had asked for a second look at.
Existing mortgage balance
$310,000
Uninsured, well-established
Debt rolled into the refinance
$27,000
Credit cards + one personal loan
Household income
$9,800/month
Two incomes, salaried
What surfaced in bank statements
An $11,000 TFSA over-contribution
Not disclosed on the application -- neither spouse realized it was a problem
The problem
A routine bank-statement review for source-of-funds turned up a withdrawal of $15,000 from one spouse's Tax-Free Savings Account in March, followed by a re-contribution of the same $15,000 in August. The couple believed the withdrawal had simply freed the room back up. It hadn't: a TFSA withdrawal is only added back to contribution room on January 1 of the following calendar year -- not the moment the money leaves the account.
Why an August re-contribution created a real tax problem
- ▸Unused room at the start of the year was only $4,000
- ▸The March withdrawal did not restore any room until the following January 1
- ▸The August re-contribution of $15,000 against $4,000 of actual room left an $11,000 excess sitting in the account
- ▸CRA taxes any excess TFSA amount at 1% per month, on the highest excess balance for each month it remains -- automatically, with no notice required to start the clock
Six months had already passed with the excess still in the account by the time the broker's document review caught it -- meaning tax was already accruing, and would keep accruing every month it stayed put.
The numbers
Two separate calculations mattered here: the refinance itself, and the tax bill nobody had budgeted for.
| The TFSA excess and its accruing tax | Amount |
|---|---|
| Contribution room actually available | $4,000 |
| Amount re-contributed in August | $15,000 |
| Excess sitting in the account | $11,000 |
| CRA tax at 1% per month on the excess | $110/month |
| Tax accrued over 6 months before it was caught | $660 |
| Refinance qualifying, at the minimum qualifying rate | Figure |
|---|---|
| New balance ($310,000 existing + $27,000 consolidated) | $337,000 |
| Payment at the minimum qualifying rate (6.95%), 25 years | $2,350/mo |
| Property tax + heat (lender estimate) | $490/mo |
| Total debt service | 29.0% |
29.0% TDS left comfortable room against the household's $9,800 income -- the refinance was never in doubt. The $660 CRA tax bill was a separate, live debt that had nothing to do with the mortgage math, and everything to do with cash available at closing. Left unaddressed, it would have kept growing at $110 a month for as long as the excess sat in the account, tracked in household debt-to-income data nowhere at all -- CRA doesn't report it to a bureau, it simply assesses it.
The solution
A submortgage broker licensed under BC's Mortgage Brokers Act treated the TFSA excess as exactly what it was -- a real, currently-accruing tax debt that had to be resolved before the refinance closed, not a credit-report anomaly to explain away.
First, had the excess amount withdrawn immediately. The tax stops accruing the month after the excess leaves the account, so every week of delay was a real cost.
Second, confirmed the couple would self-report and pay the accrued tax rather than assume CRA's discretionary waiver for reasonable error would apply -- that relief is not automatic, and budgeting for the $660 already owed (plus whatever additional month it took to clear) was the only safe assumption.
Third, sized the closing funds to absorb the tax bill alongside normal closing costs, so it didn't surface as a last-minute shortfall the week of funding.
The outcome
The excess $11,000 was withdrawn within the week, stopping further tax from accruing. The couple self-reported the over-contribution and the $660 already owed, and the consolidation refinance closed on schedule with the tax bill accounted for in their closing funds rather than discovered afterward.
TDS of 29.0% is well inside typical lender comfort for an uninsured file; this refinance was never at risk. The point of this file is the $660 CRA debt that had nothing to do with credit or income at all.
What to take from this file
- 01A TFSA withdrawal does not restore contribution room until January 1 of the following year. A same-year re-contribution against a withdrawal is one of the most common ways Canadians accidentally over-contribute.
- 02CRA's 1%-per-month excess tax is automatic and starts immediately -- it does not wait for a notice, and it keeps compounding for every month the excess remains.
- 03This is a real debt, not a bureau flag. Bank-statement review can surface a live tax liability that a credit report never will.
- 04Fix the underlying problem first. Withdrawing the excess stops the clock; waiting for CRA's discretionary waiver is not a safe plan.
- 05Budget the accrued tax into closing funds the moment it's found, rather than let it become a same-week shortfall.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸the $4,000 starting room, $15,000 re-contribution and 6-month accrual period — every household's TFSA history and timing is individual, not formulaic.
- ▸the 4.95% contract rate implied by the MQR calculation — rates move daily; not a quote.
- ▸the $27,000 consolidated debt and $9,800 household income — illustrative deal figures consistent with this file, not a universal figure.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.