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
Print This Post
{ 208 comments }
← Previous Comments
Next Comments →
@Michael James
It is NOT evident when using the paper form. At the beginning I’ve thought, it was just a mistake in the calculation from the CRA. So easy stuff, point out the mistake and problem solved. Once I’ve developed the excel spreadsheet based on their rules, I was able to replicate their results. Yup, $5000 in the TFSA and close to $80,000 in virtual money on which the penalty tax of 1% is calculated
@Ref: I believe you that you’ve replicated CRA’s results. I just can’t see how to make sense of the result. Are you willing to share your spreadsheet with me? I have no interest in your personal information. I just want to understand what CRA is doing. If you’re willing, you can send it to michael.james.money at gmail.com. I won’t use it for anything other than trying to understand how CRA is computing penalties without your permission.
@Michael James
No problem. I will send you the spread sheet.
Can you send me a copy as well? feedback “at” taxresource.ca
I can add the base of it to another post for everyone to see how you did the calculations.
Same here. This is a nasty surprise!
I’m $300 of tax payable each for my wife and I…
-total contribution $15000, total withdrawal $15000 for me.
I’m on the phone right now and will write as well.
I took a look at Ref’s spreadsheet and the difference between my thinking and this spreadsheet is that I don’t think the total qualifying withdrawals (column F on the RC243-SCH-A form) shouldn’t reset to zero at the start of each month. It should be cumulative for the whole year. (In fact, the example on the form shows this quantity being cumulative for the whole year). If CRA have been calculating it in the same way as Ref’s speadsheet, then it seems that a great many taxpayers are being ripped off.
@Michael James
I’ve replicated to the cent the amounts CRA sent me, using that spreadsheet, so there are no mistakes, in it.
and yes many taxpayers are being ripped off. Lets hope that it was not intentional and CRA will fix the problem
Wow! This looks like a monumental screw-up. Is there anyone else listening who can confirm that their penalty is based on mishandling column F of the RC243-SCH-A form? Just Ref’s results alone seem to conirm the problem, but I suppose a numerical coincidence is possible. I’d like to hear from others who can confirm the same thing.
@Michael James
If you look closer to columns [C to H] the amounts of the first row of each month are nothing else but the carryover of the amounts of the last row of the previous month [Enter the last amount from each column -says the CRA form].
Lets say in my spreadsheet between April and May, in column F the amount in the cell M32 gets its value from M29, thus the column F is NOT reset to 0 each month, but it is getting the last value of the previous month
@Ref: Yes, but this value in column F at the start of each month isn’t used. You are starting this value off at zero (because the carry-over amount isn’t used in any calculation).
@Michael James
The amount from first row of the column F of each month it is added INDIRECTLY to the next row of the column H [for example between April and May the column H jumped from 1000 to 5500 [which is 1000 last month H +4400 last month F + 100 the first contribution of May]
← Previous Comments
Next Comments →
Comments on this entry are closed.
{ 4 trackbacks }