The TFSA offering was very quickly put into place with seemingly little consistency from institution to institution in the early days. It is likely that it was felt that the 1% per month penalty would be significant enough a deterrent to dissuade folks from going over the limit. The average Joe could not hope to accrue enough to counter the 1% but for those that are skilled at trading or latch on to a going concern of a stock yielding multiples of the original investment. 1% could put a pretty serious dent in your principal over-payment over the months but not if you've made 100 - 1000%. If this is indeed something of a loophole, I would venture to say that further regs will be added to the act.