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 BlogRelated Articles
- TFSA Over Contributions
- Understanding TFSA Contribution Room
- TFSA & Non-Resident Withholding Taxes
- TFSA Questions And Answers
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Here’s my rationale:
The MAXIMUM TFSA contribution per annum is $5000. With the low market right now between 1% to 3%, the maximum TAX-FREE INTEREST you will get is $150 (at a high 3% interest rate). Now, if you took that money and put it into another savings account, you will be charged interest within your tax bracket. That means that a person who makes $1 million will get taxed ~50%. That is a maximum of $75. This is nothing to a millionaire!!! Usually, millionaires have someone doing their finances and thus won’t make the mistake of OVER-CONTRIBUTION. So, the government will probably not gain anything from them.
Now, for a poor person like myself, who is struggling to put bread on the table, who doesn’t have an accountant, who UNKNOWINGLY overcontributes $15000, with a NET BALANCE of only $2129, I have to pay over $150 in penalty. This is taxation on money that I have ALREADY been taxed on, not measly $57 dollars interest.
Now imagine if other POOR individuals, who don’t have the time to read all the fine print, who are struggling to survive, who don’t have a minute to spend with their families, fall into this trap, how much they have to pay in penalties?!!!
I want everyone to know that I COMPLETELY CLOSED OFF my TFSA!
This is one of many ways I am going to let the government know how vial and unjust they are!
I can write more about people who have had over $100,000 in OVERCONTRIBUTIONS. Yes they might have made $3000 interest last year, but they now have to pay $12,000 in “penalty” fees. That is $9,000 of there HARD EARNED money going to the government for NO REASON.
It makes sense now why Steven Harper spend $1 billion dollars last month over the span of a two-week summit in Toronto.
Zahra, you did the right thing. I’m going to close my TFSA soon as well. I was hit with over $400 palenty while I made around $60 in interest. Hopefully this will get waived.
What a trap!
I closed mine also. After being possibly charged an 800 % fine, I would rather deal with loan sharks. They couldn’t possibly be any worse than this government rip off.
I was also caught in this affair. Has you can see the government has made steps to forgive penalties that are legitimate, which most of us fall into. I do believe that we will be refunded the penalties. At this point just be patient and stop commenting negatively. To close your TFSA account will not punish the government, it only will punish you. Now that we understand what overcontribution means, lets not do that mistake again and keep taking advantage of this tax free shelter.
Dear Daniel,
If we don’t close our accounts, we will leave this false beneficial plan for other poor souls in the future who then won’t have the excuse that it is the first year of its implementation and therefore a refund. They will have no room for excuses.
If you calculate the long-term benefit this has to you and compare it to the long term detriment it will have to our communities, you’ll realize that a few dollars saved from taxes is worth saving tons of hundreds of dollars of other poor people’s money.
Bottom line, every individual is responsible for understanding what they are investing in. All the information is there and all you had to do was ask. Don’t blame it on anyone but the individual you look at in the mirror every morning. Seriously, is no one responsible for their own mistakes anymore? Wow, come on people, it is good to see you are sharing your mistakes with others to prevent them the same trouble, I think that is great, i really do, but own your mistakes please!
Oh yeah, this is one of the few opportunities Canadians have to save a little money. Closing your TFSA will only benefit the government, comments like Jonathan Harding are ignorant and uninformed.
Ref, can you send me your spreadsheet also? Trying to replicate the formulas but just can’t figure it out! Thanks hwhubertwong@gmail.com
anyone hear back from the cra yet? They cashed my check quickly in about 5 days 2 months ago but have not received anything since. Anyone have a guess as to how long before they finish gong though all the letters and give us a refund?
Between one month and 10 years, weather permitting!
Dear freind, it may not habbened at all, it’s like their election promises
The same with mine and my wife’s check and request to waive the penalty. I haven’t heard anything yet. I have been checking the canada e-pass website and there has not been any reassessment done yet. However, I have received a reply from our finance minister which I am pasting below.
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