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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so basically if you carry over any amount of the over – contribution from month to month you are charged that 1% penalty tax, which keeps on adding until the end of the year.
@Ref: Yes, the amounts from column F get carried indirectly into column H, but this is exactly where they shouldn’t go. And it ends up getting hit with 1% more each month.
I did not write the form RC243-SCH-A, just followed into a spreadsheet, since it was easier than calculating by hand. Still, I would love to talk to the genius who designed that form
@Michael James
To make the matter simple, lets assume in January 2009, you deposit $5000 in bank A, then you see a better rate of interest at bank B [i.e. 2% versus 1.5% :], so you withdrawal the money from bank A [because all the advertising told you this is a flexible account and you can access your money anytime] and deposit it in bank B [to get ultra rich with that extra 0.5%]
At the end of the year you collect your $100 to reinvest and get billionaire.
In June 20010 CRA sends you a tax bill for $600 …
the above sounds like a cash cow for Revenue Canada. I bet that at least 1/2 of the people who opened a TFSA in 2009 did something similar through last year …
@Ref: You’re right that the $600 tax is a pretty stiff penalty. However, if you had realized your mistake in January and had cleaned out your TFSAs, the penalty should only be $50, but the method CRA seems to have used for you would still cost you $600.
@Michael James
hindsight it is always 20/20. I’m not stupid and normally catch all kinds of ‘funny schemes’ however I never crossed my mind that major banks AND Revenue Canada can screw me so badly.
I think I am the one who is in the worst scenario, I put $5K in january, pulled it out for any reason, and then put it back in at the end of January. and I did exactly the same thing for my husband, so now we owe $800 altogether to CRA, this will eventually empty off our remaining balances in the TFSA. Oh God, it will take how many for us to make back the money lost through this TFSA? We should close our TFSA immediately to avoid big surprise next year. Congratulation Govt, you found a perfect way to steal people’s all year long saving “Legally”…I know it’s all our fault for not reading all the little light printed conditions that sit on the bottom of the information guide… so we made up our own mistake…thanks giving us a lesson, Government, you are the BIG WINNER this time.
do not just sit down and take it
Complain and make it viral. We are in the Internet age. Make sure that EVERYONE from your contact lists know about this scam
… and make sure you write a polite letter to
TFSA Processing Unit
PO BOX 9768 STN T
Ottawa, ON K1G 3X9
explaining the situation
Hi every victim from the TFSA, do you think that we should report this matter to CBC news to bring this government trap to public attention? I think this is the only way that we can catch the government’s attention to our innocent loss.
The National on CBC would be a good way to go.
Ellen Roseman of the Toronto Star has picked up the story.
I too have been hit with a $404 tax bill because PC Financial touted this as a savings account. At no time did I go over the $5000 balance. To make matters worse I am no unemployed and have to give the gov’t my much needed savings….
Everyone who made this honest mistake needs to take action and make themselves heard. Unless we band together and demand this situation be rectified, nothing will be done.
WRITE TO YOUR GOVERNMENT! DO SOMETHING!!
- Write a letter to CRA explaining your situation
- Email the following people, explain your situation and include a link to this blog and others as proof that you’re not alone:
Keith Ashfield (Minister of CRA): Ashfield.K@parl.gc.ca
Jim Flaherty (Minister of Finance): flaherty.j@parl.gc.ca
Your Local MP
CC: CTV News (news@ctv.ca), CBC News (yournews@cbc.ca)
Leader of the Opposition: Ignatieff.M@parl.gc.ca, Leader of
the NDP (LaytoJ@parl.gc.ca)
Hi,
Do you have a letter that you mailed already that we all can use? Please post a generic letter so that we all can take advantage of it. Thanks very much.
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