Waivers of TFSA overcontribution tax | Tax Free Savings Accounts | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Waivers of TFSA overcontribution tax
January 14, 2022
10:33 pm
Norman1
Member
Members
Forum Posts: 5036
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

CRA has the discretion to waive the TFSA overcontribution tax of 1% per month. This is from Spectrum Law: Gekas v. Canada…:

Section 207.02[1] imposes a tax on over-contributions to an individual’s tax-free savings account (TFSA) of 1 percent each month of the individual’s highest excess TFSA amount that month. Section 207.03 imposes a similar tax on contributions by non-residents.

Section 207.06(1) provides the Canada Revenue Agency (CRA) with the discretion to waive or cancel the taxes imposed under sections 207.02 and 207.03 in certain circumstances.

It is the CRA’s policy to send a warning letter to a first-time over-contributor. If the excess amount is not removed, the CRA will assess the tax. Repeat over-contributors will be assessed without warning.[2] The CRA is aggressive in imposing TFSA over-contribution taxes.

The recent case of Gekas v Canada (Attorney General)[3] (“Gekas”) illustrates the CRA’s aggressiveness in imposing over-contribution taxes and the willingness of the Federal Court to intervene.

In cases where the TFSA overcontribution was the result of error, the overcontribution has to be a consequence of "reasonable error". Judge says blame the bank, not the CRA… explores what is and is not legally "reasonable error".

January 15, 2022
12:07 am
HermanH
Member
Members
Forum Posts: 448
Member Since:
April 14, 2021
sp_UserOnlineSmall Online

Norman1 said
CRA has the discretion to waive the TFSA overcontribution tax of 1% per month. This is from Spectrum Law: Gekas v. Canada…:

It is the CRA’s policy to send a warning letter to a first-time over-contributor. If the excess amount is not removed, the CRA will assess the tax. Repeat over-contributors will be assessed without warning.[2] The CRA is aggressive in imposing TFSA over-contribution taxes.

Very helpful advice. Anyone have any experience with the 'warning letter'?

January 15, 2022
5:30 am
Bill
Member
Members
Forum Posts: 3084
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Gov't info tells you all about it, looks like it's pretty much stated, HermanH, that your situation will qualify for relief.

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/tax-payable-on-tfsas/tfsa-excess-amount-correspondence-explained.html

January 15, 2022
10:43 am
Bill
Member
Members
Forum Posts: 3084
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

I'd withdraw any excess contribution asap, then you're only subject to the monthly penalty for one month and if they actually go ahead and assess you for that penalty (whenever that happens, maybe in 2023) you can always either pay or appeal then.

January 15, 2022
11:00 am
savemoresaveoften
Member
Members
Forum Posts: 1325
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

In general, CRA are pretty lenient for first offender, whether its penalty on TFSA or RRSP overcontribution, or interest on unpaid tax due to genuine mistakes.

I corrected my RRSP overcontribution via a voluntary disclosure and filled in the form to withdraw within 6 months, no mention of penalty at all from CRA.

Also able to appeal an interest penalty on some unpaid tax, it is a genuine mistake (that I did a transpose error on one of my T5s). Just write to them to waive the interest penalty which they did without issue.

January 15, 2022
11:28 am
HermanH
Member
Members
Forum Posts: 448
Member Since:
April 14, 2021
sp_UserOnlineSmall Online

The over-contribution has already been removed. Now, just waiting to remove the $2 interest it generated, at the end of the month. sf-cry

Thanks for all the helpful advice.

January 15, 2022
11:56 am
Bill
Member
Members
Forum Posts: 3084
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Below is a link to the TFSA Guide. It refers only to contributions and withdrawals, I don't believe the $2 interest amount needs to be removed. I guess they think the 1%/month penalty will exceed any return you're going to make so they're not worried about that. If you look under the Tax Payable on TFSAs and Tax Payable on Excess TFSA Amount sections you'll see 6 examples, and I don't think any refer to any income the overcontribution might have earned within the plan.

It also refers to the need to file a RC243 to report tax owing on the overcontribution. I don't think it has anything to do with income tax returns, they have no reference to TFSAs.

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html#P44_1126

January 15, 2022
12:11 pm
Loonie
Member
Members
Forum Posts: 8232
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

From my experience with my mom's situation, any profit on the overcontribution is ignored and you are not responsible for it. It is part of the tax free account. The penalty is in the 1% only.

January 15, 2022
3:42 pm
Norman1
Member
Members
Forum Posts: 5036
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

If one wishes to try for a waiver, Income Tax Act 207.06(1)(b) requires one to also withdraw any income generated by the TFSA overcontribution:

Waiver of tax payable

207.06 (1) If an individual would otherwise be liable to pay a tax under this Part because of section 207.02 or 207.03, the Minister may waive or cancel all or part of the liability if

(a) the individual establishes to the satisfaction of the Minister that the liability arose as a consequence of a reasonable error; and

(b) one or more distributions are made without delay under a TFSA of which the individual is the holder, the total amount of which is not less than the total of

(i) the amount in respect of which the individual would otherwise be liable to pay the tax, and

(ii) income (including a capital gain) that is reasonably attributable, directly or indirectly, to the amount described in subparagraph (i).

January 15, 2022
4:06 pm
Loonie
Member
Members
Forum Posts: 8232
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I did not appeal my mother's 1% fine.

By the time I knew about it, it was almost a year after the over-contribution had been made, which was when I received the notice that she owed this money. I don't know if she received notification of overcontribution; if so, she threw it out and probably didn't know what it said or understand it. The rep I spoke to at CRA at that time suggested I could probably succeed in asking CRA to waive the fine
even at that late date due to her age and likely infirmity, but I didn't pursue it as I already had enough hassles. I complained clearly but informally to RBC branch manager, but they couldn't care less. The CRA rep's attitude suggested she'd heard these kinds of complaints about banks many times before.

January 15, 2022
8:46 pm
AltaRed
BC Interior
Member
Members
Forum Posts: 1795
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

My ex-spouse over-contributed one full year's worth a few years ago. She had not kept good records nor did her discount brokerage. In any event, she got a warning letter from CRA (I didn't see actual letter) upon which she pulled out the excess immediately and advised CRA when she had done so. No penalty was assessed.

That all said, I have heard as per Post #1 that CRA is not tolerant to repeat offenders (rightfully so). It should not be difficult to maintain proper records.

January 15, 2022
9:57 pm
Loonie
Member
Members
Forum Posts: 8232
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

Maybe it shouldn't be that difficult, but for a lot of people it really is. Not everyone is endowed with the same degree of facility with numbers or reading instructions. There is no point in berating them for what they cannot do. Apparently many bank employees can't even figure it out.

The whole way it is structured is silly and counter-intuitive, with people being able to take money out on Dec 31 and redeposit it the next day, but not being able to take it out on Jan 3 and do likewise.
The very least the government and/or the FIs could do is provide some sort of chart which people could use to keep track, which would readily show the their contribution room at all times. I have never seen any FI offer this.

This is off-thread, I know, but I find it all very annoying even though I personally have the skills needed.

January 16, 2022
7:08 am
AltaRed
BC Interior
Member
Members
Forum Posts: 1795
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

I suspect FIs cannot show how much contribution room anyone might have since they don't know where else the customer has other TFSA accounts. One could argue that FIs should be required to submit TFSA transaction data every month to CRA such that CRA has a relatively current record for the taxpayer, but then everyone would have to have CRA MyAccount access too to see a cumulative running record.

The rules are really not that complicated. 1) There is a certain amount of new contribution room that is added each year, and 2) the CAD amount of any withdrawals in a given year cannot be re-contributed until the next calendar year. That is almost as simple a process as it can be, with one exception being permanent loss of contribution room for any withdrawal.....as with RRSPs (no re-contribution possibility). Is that what folks want?

It is really the individual that makes it complicated for him/herself with fringe transactions, e.g. in-kind, USD, etc.

January 16, 2022
10:43 am
Bill
Member
Members
Forum Posts: 3084
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

I agree, an FI does not know what you're up to elsewhere, nor can it be substitute for CRA relief route available to everybody. And I agree the TFSA rules are pretty simple, I've not heard among the people in my circle that they're having problems with them. Dec 31 2021 is a lot different than Jan 1 2022 for a myriad of reasons, financial and otherwise, certainly not just TFSAs, just something generally known.

Registered products are not designed to be used for short-term purposes, TFSAs are no exception. If you're doing frequent ins/outs maybe best do it outside of registered accounts, unless you're ready to be meticulous in your recordkeeping. I keep my own paper chart, pretty simple, each line shows year, that year's annual limit, contributions made, withdrawals (zero to date) - I can calculate everything from that.

My parents, when they got to the age they no longer wanted to, or could, proficiently navigate the world of finances, taxes, etc got me to do it for them (and I lived 3 hours away, it was no problem once we set things up), their same-age friends, etc did similar from what I could see. It's a good idea to prepare ahead of time for a time that almost certainly will come and it's certainly not CRA's or a financial institution's job if I fail to do so, in my opinion.

January 16, 2022
12:03 pm
christinad
Member
Members
Forum Posts: 290
Member Since:
October 15, 2015
sp_UserOfflineSmall Offline

I've always kept a rough table - i think this year i'll keep a detailed spreadsheet as i never quite trust my calculations. That said i'm glad that cra can sometimes show forgiveness. I know for me i didn't do my taxes for 5 years due to depression. I never heard back from them about it maybe as i didn't owe tax. (This was 15 years ago) Sometimes when you are stressed and overwhelmed your finances are the last thing on your mind.

January 16, 2022
3:55 pm
Bill
Member
Members
Forum Posts: 3084
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

Not everybody has to file a tax return. Here's the CRA info re who has to file (note there's no connection between filing a tax return and TFSAs):
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/you-have-file-a-return.html

January 16, 2022
4:21 pm
christinad
Member
Members
Forum Posts: 290
Member Since:
October 15, 2015
sp_UserOfflineSmall Offline

It is not something i recommend. If it happens to you i recommend just biting the bullet and paying a tax preparer. I feel lucky I was never audited after that. Thats why in the case of tfsa over contributions i try and be careful so i’m not put on revenue canada’s radar.

January 16, 2022
5:01 pm
christinad
Member
Members
Forum Posts: 290
Member Since:
October 15, 2015
sp_UserOfflineSmall Offline

Also thanks for your post. I’ve always felt guilty about not doing those tax returns.

January 16, 2022
5:41 pm
Alexandra
British Columbia
Member
Members
Forum Posts: 312
Member Since:
September 24, 2019
sp_UserOfflineSmall Offline

I do keep a spreadsheet for all my investments.

Plus I have a TFSA "paper file". In this file I have a pile with a print out of each initial yearly investment with the latest one on top. I print on the top right hand corner the year of the investment, keeping the most recent year on top. have at

Even though it is always outdated, I go into CRA "my account" and print off their TFSA transaction summary. This sheet has four columns. From left to right they are: Financial Institution & TFSA Number, Date (of the initial contribution), Contribution (dollar amount of the contribution) and finally a Withdrawal column.

Because it can become a little confusing, I ink in beside each Financial Institution listed on the left, the date of contribution. Because they get behind, I add at the bottom of their list my recent contribution(s) list In their "Withdrawal Column it shows any withdrawals of any original contribution. They get behind in that as well, so I make ink notes in that column. For instance, I cashed in my 2015 Contribution in total with Tangerine Bank. So in the Withdrawal column I have annotated "Cashed in full GIC in 2020; reinvested with Oaken P.T Jan 2021."

January 18, 2022
6:01 pm
christinad
Member
Members
Forum Posts: 290
Member Since:
October 15, 2015
sp_UserOfflineSmall Offline

I had to post this. Today i meant to make a contribution to my td direct investing rrsp account and i accidentally transferred the money to my tfsa. I don’t know what i was thinking. Luckily it was a relatively small amount, but still annoying. I didn’t know if there was a way if you made a mistake you could remove it. I decided i didn’t want to wait on hold and left it. I haven’t gone over my limit.

I think the problem was originally i was going to invest in my tfsa first this year and then i changed my mind. This is the first time i’ve ever done this and i will be more careful in the future.

No permission to create posts

Please write your comments in the forum.