5 Costly Tax Mistakes Canadian XEQT Investors Keep Making (And How to Fix Them)

I got the letter on a Tuesday in March. A plain white envelope from the Canada Revenue Agency, the kind that makes your stomach drop before you even open it. Inside was a notice informing me that I had overcontributed to my TFSA by $5,000 and owed a penalty of $50 per month for every month the excess remained in the account.

I had no idea what they were talking about. I had checked my contribution room – or so I thought. What I hadn’t realized was that when I withdrew $5,000 from my TFSA in February and put it right back in April, I didn’t get that room back until January 1 of the following year. That “simple” withdrawal and recontribution cost me $500 in penalties before I caught it.

That one letter changed how I think about tax planning. Not because the CRA was being unfair – the rules were clear, I just didn’t know them. And when I started talking to other XEQT investors in online communities, I realized my mistake wasn’t even the most expensive one people were making. Some investors were losing far more – not because they were careless, but because tax rules in Canada are genuinely confusing, and the consequences of getting them wrong are painfully real.

This post covers the five costliest tax mistakes I see Canadian XEQT investors make over and over. For each one, I’ll explain how it happens, what it costs, and exactly how to fix it. If you want a broader look at how XEQT is taxed across different account types, the XEQT tax implications guide covers that. For capital gains specifically, see the capital gains tax guide. This post is different – it’s focused entirely on the mistakes that cost you money and the specific actions that fix them.

1. Overcontributing to Your TFSA (And Not Realizing It)

This is the most common tax mistake I see, and it’s the one I made myself. The TFSA is the favourite account for most Canadian XEQT investors – and for good reason. Growth is tax-free, withdrawals are tax-free, and there’s no reporting hassle. But the contribution rules have a trap that catches thousands of people every year.

How It Happens

You withdraw money from your TFSA for some reason – a car repair, a vacation, a down payment. A few weeks or months later, you have the cash again and put it back. Seems reasonable, right?

Here’s the problem: TFSA contribution room from withdrawals doesn’t reset until January 1 of the following year. If you withdraw $5,000 in March and recontribute $5,000 in September, that recontribution counts against your current year’s room. If you’ve already maxed out, you’re now $5,000 over the limit.

What It Costs

The CRA charges a penalty of 1% per month on the highest excess amount in your TFSA during each month the overcontribution exists. That might sound small, but it adds up fast.

Example: You started 2026 with $7,000 of contribution room. You contributed $7,000 in January (good – you’re maxed). In March, you withdrew $5,000 for an emergency. In July, you put the $5,000 back, thinking your room “refilled.”

It didn’t. You’re now $5,000 over the limit.

• Monthly penalty: $5,000 x 1% = $50/month
• If you don’t catch it until December: 6 months x $50 = $300
• If you don’t catch it until the following March: 9 months x $50 = $450

And here’s the worst part – the CRA won’t necessarily tell you right away. You might not find out until you get a notice of assessment the following year. By then, you’ve been accumulating penalties for months.

The Fix

Before making any TFSA contribution, log into your CRA My Account and check your exact contribution room. Don’t estimate it. Don’t assume your withdrawal created immediate room.

• Never withdraw and recontribute in the same calendar year unless you are certain you have unused room
• Track your contributions in a spreadsheet – don’t rely solely on your brokerage’s numbers, as there can be a lag in CRA reporting
• If you realize you’ve overcontributed, withdraw the excess immediately to stop the monthly penalty from growing
• If you’ve already been penalized, you may be able to request relief from the CRA if it was a genuine mistake and you’ve corrected it – but don’t count on this

If you’ve already received a penalty notice, I wrote a full guide on how to handle it: TFSA overcontribution fix.

Wealthsimple shows your TFSA contribution room directly in the app, which makes it much harder to accidentally go over. It’s not a replacement for checking CRA My Account, but it’s a useful guardrail.

2. Contributing to Your RRSP When You’re in a Low Tax Bracket

This mistake doesn’t come with a penalty notice from the CRA. It’s quieter – and often more expensive in the long run.

How It Happens

You hear everywhere that RRSP contributions are “free money” because you get a tax deduction. So you diligently contribute every year, even when your taxable income is under $55,000. The problem is that the RRSP’s benefit is based on a simple bet: you deduct at today’s tax rate and pay tax at a future rate. If today’s rate is lower than your future rate, you lose.

What It Costs

Let’s use a simplified Ontario example.

The wrong move: You contribute $9,000 to your RRSP at a marginal rate of 20.5% (earning $50,000). You save $1,845 in tax this year.

The future cost: In retirement, your income from RRSP withdrawals, CPP, and OAS puts you at a marginal rate of 29.65%. When you withdraw that $9,000, you pay $2,669 in tax.

Net loss: $824.

You effectively gave the government an interest-free loan – and paid them a tip for the privilege. Over a 25-year career of making this mistake annually, you could be looking at tens of thousands of dollars in unnecessary tax.

The Fix

If your marginal tax rate is at the lowest bracket – roughly 20-25% combined in most provinces – prioritize your TFSA first. TFSA contributions don’t give you a deduction now, but withdrawals in retirement are completely tax-free. There’s no risk of paying a higher rate later because there’s no rate at all.

Here’s the decision framework:

• Marginal rate under 25% combined: Prioritize TFSA, then FHSA (if eligible), then RRSP
• Marginal rate 25-35% combined: It’s a toss-up – both TFSA and RRSP work well
• Marginal rate above 35% combined: RRSP deduction becomes very powerful – prioritize it
• Any rate if your employer matches RRSP contributions: Always contribute enough to get the full match – that’s an instant 50-100% return regardless of your bracket

For a deeper breakdown of how to prioritize between these accounts, see TFSA vs RRSP vs FHSA.

One important exception: If you’re in a low bracket now but confident your income will jump significantly soon (finishing medical residency, articling at a law firm), you can contribute to your RRSP now but defer the deduction to a future year when you’re in a higher bracket. You don’t have to claim the deduction in the year you contribute.

3. Not Tracking Your Adjusted Cost Base (ACB) in Non-Registered Accounts

If you hold XEQT in a taxable (non-registered) account, this mistake can cost you thousands in overpaid tax – and you might never know it.

How It Happens

You buy XEQT every month through automatic contributions. Each purchase is at a different price. XEQT pays distributions that include return of capital, which affects your cost base. You might be enrolled in DRIP, creating additional purchases at various prices. After a few years, you’ve made dozens of transactions that all affect your adjusted cost base – and you haven’t tracked any of them.

Then one day you sell. Your brokerage sends you a T5008 slip that shows the proceeds, but the ACB field is either blank or wildly inaccurate. You’re on your own.

What It Costs

The ACB is critical because it determines how much capital gain you report. If your ACB is too low, you overpay tax. If it’s too high, you underpay tax and risk a reassessment.

Here’s a practical example:

Scenario: Over 10 years, you’ve invested $120,000 into XEQT in a non-registered account across 120 monthly purchases. XEQT has also paid distributions that included $3,000 in return of capital (ROC) over that period. ROC reduces your ACB. Your actual ACB is $117,000 ($120,000 minus $3,000 ROC).

Your XEQT is now worth $200,000. You sell the entire position.

• Correct capital gain: $200,000 - $117,000 = $83,000
• If you forgot to track ACB entirely and guess “about $100,000”: $200,000 - $100,000 = $100,000 capital gain – you’d overpay tax on $17,000 of phantom gains
• If you used $120,000 (ignoring ROC adjustments): $200,000 - $120,000 = $80,000 capital gain – you’d underpay and risk CRA reassessment

At a 50% inclusion rate and a 30% marginal tax rate, that $17,000 error costs you roughly $2,550 in overpaid tax. And you’d never get it back because you can’t prove the correct number.

The Fix

Start tracking your ACB now. Even if you haven’t been tracking it, it’s not too late.

• Use adjustedcostbase.ca – a free Canadian tool designed for exactly this
• Download your transaction history from your brokerage – most platforms let you export a CSV going back to account opening
• Check your annual T3 and T5 slips for the breakdown of distributions (eligible dividends, foreign income, capital gains, return of capital)
• If you use DRIP, track every reinvested distribution as a separate purchase at the reinvestment price

For a complete walkthrough, see the XEQT adjusted cost base guide.

Wealthsimple provides annual tax documents that include distribution breakdowns and transaction histories, which makes reconstructing your ACB easier. But regardless of platform, the responsibility for accurate ACB tracking is yours – not your brokerage’s and not the CRA’s. For more on handling XEQT in a taxable account, see XEQT in non-registered accounts.

4. Accidentally Triggering the Superficial Loss Rule During Tax-Loss Harvesting

Tax-loss harvesting is one of the smartest strategies for Canadian investors with non-registered accounts – sell an investment at a loss, use that loss to offset capital gains, and reduce your tax bill. But the CRA has a rule that trips up investors who don’t know about it.

How It Happens

The market drops and your XEQT position is sitting at a loss. You sell to “harvest” the capital loss. Then the market dips further two weeks later, and you think, “Great, I’ll buy XEQT back at an even lower price.” You buy it back 15 days after selling.

Your capital loss is now denied.

The CRA’s superficial loss rule says that if you (or an “affiliated person,” which includes your spouse or a corporation you control) acquire the same or identical property within 30 calendar days before or after the sale, the loss is denied. That’s a 61-day window total.

The Traps You Might Not Know About

The superficial loss rule is broader than most people realize:

• Buying in a different account type triggers it. If you sell XEQT at a loss in your non-registered account and your spouse buys XEQT in their TFSA within 30 days, your loss is denied.
• DRIP can trigger it. If you have DRIP enabled and your distribution reinvestment buys XEQT units within the 30-day window, that counts as an acquisition.
• Your spouse’s accounts count. If your spouse buys XEQT in any account within 30 days of your sale, you lose the deduction.
• Even buying in your own TFSA or RRSP triggers it. Selling at a loss in non-registered and buying in your TFSA within 30 days? Loss denied.

What It Costs

Example: You hold $50,000 of XEQT in a non-registered account with an ACB of $55,000. The market has dropped and you sell the entire position, realizing a $5,000 capital loss. At a 50% inclusion rate and 30% marginal tax rate, that loss would save you $750 in tax.

But 12 days later, XEQT drops another 3% and you buy it back. The CRA denies your $5,000 loss. The denied loss gets added to the ACB of the repurchased shares, so it’s not gone forever – but you can’t use it now, and if you hold for years before selling again, the time value of that $750 in delayed tax savings adds up.

The Fix

You have two clean options:

• Wait 31 full calendar days before repurchasing XEQT. Mark it on your calendar. Set a reminder. Don’t trust your memory.
• Buy a similar but not identical ETF as a placeholder. If you sell XEQT, you could buy VEQT or ZEQT during the 30-day window. These are similar all-equity ETFs but are not identical property to XEQT because they track different indexes and are managed by different companies. After 31 days, you can sell the placeholder and buy XEQT back if you prefer.

A few additional precautions:

• Turn off DRIP on any position you plan to tax-loss harvest, at least 30 days before and after the sale
• Coordinate with your spouse – make sure they aren’t buying XEQT in any of their accounts during your 30-day window
• Don’t buy XEQT in your TFSA or RRSP during the window either

For a full strategy guide on how to execute this properly, see tax-loss harvesting with XEQT.

5. Ignoring the T1135 Foreign Property Reporting Requirement

This one is different because for most XEQT investors, it’s actually a non-issue. But the confusion causes real anxiety – and for investors who do need to file and don’t, the penalties are steep.

How the Confusion Happens

You read online that if you own more than $100,000 in foreign property, you need to file Form T1135 (Foreign Income Verification Statement). You look at your portfolio and see that XEQT holds stocks from the US, Europe, Asia, and dozens of other countries. Your position is worth $120,000. You panic.

Don’t. Here’s why.

The Actual Rule

The T1135 requirement applies to specified foreign property that you hold directly. The key word is “directly.” XEQT is a Canadian-listed ETF that trades on the TSX in Canadian dollars. Even though its underlying holdings include thousands of foreign stocks, you don’t hold those foreign stocks directly – you hold Canadian trust units.

Canadian-listed mutual funds and ETFs that hold foreign investments do not count as specified foreign property for T1135 purposes. So your XEQT holdings, no matter how large, do not trigger T1135 on their own.

When You DO Need to Worry

The T1135 obligation kicks in if the total cost of all your specified foreign property exceeds $100,000 at any point during the year. For XEQT investors, this becomes relevant if you also hold:

• US-listed ETFs like VTI, VOO, QQQ, or SPY – these are listed on American exchanges and count as specified foreign property
• Individual foreign stocks – shares of Apple, Google, Tesla, etc. held directly in your account
• Foreign bank accounts, foreign rental property, or other foreign assets

Example: You hold $80,000 of XEQT (does not count for T1135) and $25,000 of VTI (counts as specified foreign property). Your total specified foreign property is $25,000 – well under the $100,000 threshold. No T1135 needed.

But if you held $80,000 of XEQT and $105,000 of VTI, that $105,000 in US-listed ETFs exceeds the threshold and you’d need to file.

What It Costs If You Get It Wrong

The penalties for failing to file T1135 when required are severe:

• $25 per day for late filing, up to a maximum of $2,500
• $500 per month for knowingly or under gross negligence failing to file, up to $12,000
• Potential reassessment of your entire return

The Fix

For most XEQT investors, the fix is simple: if all your investments are Canadian-listed ETFs like XEQT, VEQT, and ZEQT, you almost certainly don’t need to file T1135.

If you also hold US-listed ETFs or other direct foreign investments:

• Add up the total cost (not market value) of all your specified foreign property – US-listed ETFs, foreign stocks, foreign bank accounts, etc.
• If it exceeds $100,000 at any point during the year, file T1135 with your tax return
• Keep records of your cost amounts for each foreign holding
• Consider whether you even need US-listed ETFs. One of the advantages of XEQT is global diversification without triggering foreign property reporting

This is where the simplicity of XEQT really shines. By holding a single Canadian-listed fund instead of a basket of US-listed ETFs, you sidestep an entire layer of tax reporting complexity.

Quick Reference: The 5 Mistakes and Their Fixes

Audit Your Own Situation

If you’ve been investing in XEQT for more than a year, take 30 minutes this week and run through this checklist:

• TFSA: Log into CRA My Account and confirm your contribution room matches what you think it is. If there’s a discrepancy, sort it out before contributing another dollar.
• RRSP: Look up your combined marginal tax rate for your province and income level. If it’s under 25%, ask yourself whether your TFSA should be getting those dollars instead.
• ACB: If you hold XEQT in a non-registered account, pull your transaction history and start building your ACB record. The longer you wait, the harder it gets.
• Superficial losses: If you’ve done any tax-loss harvesting (or plan to), review whether you or your spouse repurchased the same ETF within 30 days. Check all accounts, including TFSAs and RRSPs.
• T1135: If you hold any US-listed ETFs or direct foreign investments, add up the total cost. If it’s anywhere near $100,000, consult a tax professional.

None of these mistakes are embarrassing to make. The rules are genuinely complicated, and the CRA doesn’t exactly go out of its way to make them intuitive. But each one is fixable – and the earlier you catch it, the less it costs you.

For a comprehensive annual tax planning routine, check out the year-end tax checklist for XEQT investors.

The whole point of investing in XEQT is to keep things simple. Don’t let avoidable tax mistakes be the thing that complicates it.