Letter To Jim Flaherty TFSA Overcontribution Penalties

by Tax Guy - Burlington Accountant on June 9, 2010 Print This Post Print This Post

Following is a copy of an e-mail sent to Jim Flaherty and Keith Ashfield today about the TFSA penalties many are facing right now.

Subject: Request To Address TFSA Overcontribution Penalties

Dear Mr. Flaherty & Mr. Ahsfield,

As you may be aware, a number of Canadian’s are receiving requests for payment from the CRA in response to over-contributions made to TFSA’s.

If you read the comments of many the visitors to my website, http://blog.taxresource.ca/tfsa-over-contributions/, you will see that in many cases the over contributions were unintentional errors resulting from a general misunderstanding of the workings of the account. Similar comments and experiences can be viewed at the popular http://forums.redflagdeals.com/my-tfsa-balance-200-cra-wants-me-pay-interest-5700-wtf-899497/

The TFSA has proven to be a popular savings vehicle for Canadians. However, the $5,000 contribution limit has resulted in confusion. Many Canadians viewed the account as a regular savings account and were unaware that withdrawals would not be added back to the limit until the following year. In one case, a reader to my website indicated that he had over contributed to the tune of $40,000 while another had $70,000. In these cases it appears the taxpayer effectively contributed $5,000 to a TFSA, withdrew it and deposited the same amount to another TFSA and repeated the process in search several times, unaware of the ability to transfer between TFSA’s and avoid an over contribution.

I have directed many taxpayers to contact the Canada Revenue Agency to ask for leniency or request that the penalties be waived. Based on some of the responses I have received back, indicate that there seems to be an inconsistent application the Taxpayer Relief Provisions with respect to TFSA penalties.

I would ask that the Government of Canada direct the Canada Revenue Agency to waive all TFSA overcontribution penalties in those cases where an honest mistake or error has resulted in the overontribution. In addition, I would also suggest that a public education initiative be undertaken to help Canadians and financial institutions understand the TFSA.

I would like to extend an invitation to both of you to respond directly through The Canadian Tax Resource Blog either in the form of a letter or a media release. Such a response would provide you the opportunity to interact and address the concerns of Canadians on this specific matter. Finally, the substantive content of this letter will be posted on the site later today.

Yours Truly,
“Tax Guy”
The Canadian Tax Resource Blog

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 210 comments }

aerosmith September 2, 2010 at 3:47 pm

“Thank you for your correspondence of regarding the TFSA. In the first year of the program, the reponse to the TFSA has been overwhelmingly positive. Approximately 4.7 million Canadians have taken out a TFSA since the program was initiated.

Our Government recognizes that there was some genuine confusion about the rules for the TFSA in the first year. We understand that it may take time for some Canadians to learn about the program and for some financial institutions to properly inform their clients about this product.”

aerosmith September 2, 2010 at 3:48 pm

Accordingly, on June 25, 2010, our Government announced its willingness to waive taxes on excess contributions for taxpayers who may have misunderstood the TFSA contribution rules. A copy of this announcement is available on the Department of Finance Canada website at fin.gc.ca/news-nouvelles/nr-nc/tfsa-celi-eng.asp. The announcement contains instructions for TFSA holders regarding steps to follow to seek relief.”

aerosmith September 2, 2010 at 3:49 pm

It is very disheartening to see that our Government is not prompt in processing issues. I am planning to write to CRA again and request them to waive the 700 $ penalties that I and my wife paid this year.

Marie Benoit October 2, 2010 at 12:46 pm

With respect to the many overcontributions to TFSA accounts. I believe that the information provided by government and financial institutions, initially when this program was introduced was more than sufficient. As with any program, it is the contributors that are more at fault for NOT EDUCATING THEMSELVES about the plan…I HAVE FOUND THAT MANY OF THEM DO NOT READ LITERATURE OR LISTEN TO WHAT THEY ARE BEING TOLD……some people always try to get around any rules ..AND CRY FOWL WHEN THEY ARE CAUGHT…no exception in this case……Marie

shylock October 2, 2010 at 12:52 pm

Review you post again, you are insulting 65000 Canadian!

Evan Bertrand December 2, 2012 at 4:08 pm

I don’t think these fess should even be legal. The reason why is that it creates a situation where the government can charge tax on money that an individual does not even have. By simply disregarding a withdrawl until the next year, you are saying that they still have the money and should be charged interest on it. When in fact the money does not even exist. For example someone who deposits 5000 dollars withdraws it, deposits it again into a tfsa. Then does this one more time the person is then charged 1% per month on 10,000 dollars. Money they don’t even have! This is legal?

Tax Guy - Burlington Accountant December 2, 2012 at 9:38 pm

The penalty tax is to discourage abuse, of which there is quite a bit. If an honest mistake was made, the CRA may waive the penalty tax.

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