I believe the 1% rule applies to general over contributing in normal "savings accounts" (which usually give 1% interest, so basically you don't gain anything from overcontributing). The 100% tax is for other investment vehicles (such as stocks) so people don't take advantage of it. And as others have said, this did work before but the loophole has been since closed. I think there's a difference between TFSA "savings" accounts and TFSA "trading" accounts. Good thing others have warned you in time, and I would definitely complain to waterhouse.