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 →
I’ve written an article explaining what I think is going on:
http://michaeljamesmoney.blogspot.com/2010/06/tfsa-over-contributions-may-be-over.html
I’d be interested in hearing from anyone willing to share their over-contribution tax calculations to confirm that CRA is indeed doing them incorrectly. I don’t want to see names, SINs, or anything else personal. I’d just like to see the trail of deposits, withdrawals, and the tax calculations. If you’re willing to help, you can send me information at michael.james.money at gmail.com. If anyone is able to help, I’ll report back on my findings.
@Michael James
here’s my transaction at PC
Jan 05, 2009 TRANSFER IN $5,000.00
May 21, 2009 TRANSFER OUT $2,000.00
May 28, 2009 TRANSFER IN $1,000.00
Jun 24, 2009 TRANSFER IN $1,000.00
Jul 23, 2009 TRANSFER OUT $5,000.00
Jul 27, 2009 TRANSFER IN $3,000.00
Sep 21, 2009 TRANSFER IN $2,000.00
Dec 11, 2009 TRANSFER OUT $5,000.00
I had been fined $290, namely, $29000 over-contribution
I’ve got $320 based on the above numbers and my spreadsheet
Either the poster rounded some amounts or CRA uses a DAY based calculation. I’m too lazy to adjust the existing spreadsheet
In any case 290/320 is 90% exact
Do you think if everyone who has been screwed by this set up an automatic daily deposit of $1 each day and a 1 withdraw each day for an entire year on there pc financial account making sure to break the $5000 limit at some point just to create a massive amount of record keeping and paperwork for PC and the CRA might piss them off….. just thinking of a way to get back at these guys….. I think the 1% of $1 a month would be worth it….. (out $650 between my wife and myself never breaking the $5000 mark at one time)
Story on the Toronto Star website:
http://www.thestar.com/business/article/822383–roseman-taxpayers-hit-with-penalties-on-tax-free-savings-accounts
I got stung too. PC financial.
in 5000.00 5/1/09
in .01 6/1/09
out 5010.54 9/2/09
out 3.33 23/2/09
in 4996.84 2/3/09
out 5000.00 23/12/09
total in according to CRA: 9996.85
total out according to CRA 10013.87
Details on the CRA TFSA Return 2009
Part A
Total from line 13 of section 2 from schedule A $49,968.42
Rate x1%
Multiply line 1, by line 2. Tax on excess TFSA
amounts. Enter this amount on line A of
section 2 =$ 499.68
I’m still not sure what exactly the almost $50k amount refers to, or how it is calculated. Does this mean that CRA thinks I put in $50k? I don’t even EARN 50k in a year! Last years income was $31k after tax!!
Using my spreadsheet and your numbers I’ve got $499.69 [CRA charged you one CENT less]
If you have an email address and know how to look into an Excel spread sheet formulas I can send you the calculations.
@ref.
Thanks for checking bud. I’m guessing the calculations on the CRA part was something like a half penny over and the CRA rounded down. I believe your calculations are correct, and since excel baffles the crap outta me, I will decline your generous offer!
That $50k figure is just out to lunch. CRA are effectively saying I put in 50k, when THEIR OWN TAX RETURN that they sent previously states I got 31 k after tax! I guess one department doesnt talk to another!!
The way they did not think the whole penalty system is flawed in design.
In your case started in March 2009 you were paying 1% of $4996.85 thus $49.97 per MONTH in taxes.
March to December are ten months so that figure 499.68
Update…..as far as getting the press/media involved I wrote to the Alberta division of the Canadian Tax payers Federation (CTF)
Thus:
“Dear Mr. Hennig,
I’m not sure if the CTF is aware of the growing anger at the CRA’s latest money making rip off, the TFSA.
In short, I received a letter from the CRA stating that I owe them $499 and change, as, according to them, I contributed more than the $5000 ‘allowed’ and were clobbering me with the above bill. Even though I had only ever had $5000 in the TFSA, withdrawn once and redeposited once.
More details, on an open letter to Jim Flaherty and Keith Ashfield, and angry taxpayers here:
http://blog.taxresource.ca/letter-to-jim-flaherty-tfsa-overcontribution-penalties/comment-page-1/#comment-6573
Plus more details that CRA’s own formula may be flawed here:
http://michaeljamesmoney.blogspot.com/2010/06/tfsa-over-contributions-may-be-over.html
Mr. Hennig, I do hope the CTF can highlight this nasty little scam to the press, and perhaps the CRA will alter this arbitary and unfair tax.
Regards,
Mr. Keith XXXXX
Calgary
403 XXX XXXX
403 XXX XXXX”
I got a nice personal reply from Mr. Hennig just now (poor guy must be working late!) saying that my email is the 2nd hes got over this.
My email is being forwarded to the Ottawa branch of the CTF. Mr Hennig can’t promise anything, but it’s a start right?
I am thinking we could all hassle our local MP’s about this. Find out when they hold drop ins for local constituents at their local offices, then write them a letter, write the PM a letter, write the cheif guy of the CRA a letter, make a nuisance of yourself at your local tax office (mine is at the harry hayes building downtown in Calgary if anyone wants to join me let me know!!). Maybe arrange sit ins, or a picket at local tax offices… Hand out leaflets in front of the CRA HQ in Ottawa (? if its there). Local CBC radio awareness. National/City newspapers. CALL reporters up. Ask them if they have heard of it. etc etc
Being from the UK, and having such a broken infrastructure, we have learned that to get anything done people power wise, you HAVE TO MAKE A NUISANCE OF YOURSELF. Stay within the law though. But write, phone EVERY DAY if you have to.
If enough of us do it, things will change, just so that the beancounters can shut us up.
I received this notorious letter today from the CRA, claiming that I owe 377.69 in taxes!!
First I thought it’s a mistake, especially when they claim that my contribution is 37k, although my balance never exceeded 5k!
I started searching the net for an explanation, and I found this site.
So..it’s not a joke, And It’s not a mistakes, And I’m a fool, although I used to think of myself as smart guy?
What really tricked me, is that I trusted the government of Canada, If a con artist tried to trick me I wouldn’t have been fooled, you only get tricked when it comes from a source that, in your opinion, is trustful!
When I try to find a reason for the government to set this tricky rules, I can’t find a decent reason
This account was supposed to save us some pennies, TAX FREE, and it cost us 50 times the taxes that we should have paid with a regular saving account! ($377 to save $15)
And you we can’t fight it, can we?
With all these words, I really can’t express my bitterness
All what I can say, is that I lost trust in any government plan , now I’m scared about what kind of tricks are in my RRSP and RESP, even if there’s no tricks in these plans now, it may come in future, and to not be fooled twice, I’ll not contribute to any of them anymore!
@KBE
“What really tricked me, is that I trusted the government of Canada, If a con artist tried to trick me I wouldn’t have been fooled, you only get tricked when it comes from a source that, in your opinion, is trustful!”
I could not agree more with that comment. Never crossed my mind that our government would be in a position to trick people. I’m not completely sure what got into them since the CRA letters are still fresh, but I will not give up in finding an answer.
← Previous Comments
Next Comments →
Comments on this entry are closed.
{ 4 trackbacks }