Ottawa offers relief to unsuspecting TFSA holders
Some 70,000 Canadians who recently received surprise tax bills for putting too much money into their new TFSAs may be getting a break.
The offending investors inadvertently exceeded the $5,000 contribution limit because they made frequent deposits and withdrawals or transferred sums among TFSAs at different institutions.
They didn’t realize that you can’t withdraw your savings and tax-free profits, then later put the same amount of money back into the account, or to another account, during the same calendar year.
And now they're very sorry.
If you recently received a request to pay the unexpected tax on your TFSA, you now have until Aug. 3 to plead your case – not June 30, the original deadline. Better still, you may not have to pay any penalty at all, if it’s clear there was a genuine misunderstanding.
CRA now says that as long as the accounts never exceeded $5,000 at any point during the year, there likely won't be any fines applied on the excess contributions.
That's a pretty good deal if you ask me although, if you’ve already settled up and paid your fine, there’s been little talk of refunds.
Nor is there any bonus for 4.7 million savers who actually took the time to read the rules and followed them – other than the satisfaction that they’re likely a bit more literate than some of their neighbours.
For more info, your best bet is to talk directly to the CRA at 1-800-959-8281 or at www.cra-arc.gc.ca.
If you've been stung with a dunning letter from CRA, how are you pleading your case? If not, does all this seem a bit unfair?
By Gordon Powers, MSN Money
Posted by: J. Lindon | Jun 28, 2021 2:27:28 AM
This is ridiculous. Anyone dumb enough to exceed their limit should pay a fine. No excuses. I am tired of hearing about stupid people avoiding responsibility.
Posted by: H. Neg | Jun 28, 2021 10:00:16 AM
Listen Lindon, this is not talking about over contribution as pretty much everyone knew about the cap. This is about pulling out that same $5000 and putting in back into another TFSA for example. I received a notice for the penalty as well. I had only made 60 bucks until dec/09 so my FA said we should move it into something that would yield a higher return. So I pulled out the $5000 plus any interest earned and then only redeposited $5000 (without the interest I prev earned cause I didn't want to overcontribute) into another TFSA. The penalty was $50 bucks and I only made $60 in the year, which kind of defeats the purpose of a TFSA (actually I got taxed more than I usually would if I didn't have a TFSA). They indicated that you can pull out money anytime from a TFSA and can not exceed $5000 in contributions. So the assumption would be that as long as you don't have more than $5000 at any time (excluding interest earned) it should be ok - BUT NOT ACCORDING TO THIS PENALTY! So it is an honest mistake for a lot of people, including ME!
Posted by: PirateKitty | Jun 28, 2021 10:07:36 AM
Listen Neg, that's what transfers are for. You can transfer between institutions from a TFSA to a TFSA without ever taking it out of the tax shelter. It's your own fualt for not knowing the rules and not bothering to ask your FA whether this would affect your yearly limit. Furthermore, your FA isn't very good if s/he didn't know the rules around TFSAs; it's their job to know this stuff.
That being said, I don't see anything wrong with the rule being changed to a flat $5000 per year despite withdrawals/deposits, but it does sort of defeat one of the purposes of the account which was to encourage Canadians to save more money with some more flexibility than an RRSP.
Posted by: rbark | Jun 28, 2021 11:14:46 AM
Neg, and all others who had the same problem. Fire your FA immediately, if they didn't understand or couldn't read the rules, then why are they managing your money? Wake up people, I learned my lesson aswell years ago. Stay away from those morons working at the banks.
Posted by: mikodeco | Jun 28, 2021 12:31:11 PM
I agree with Lindon. What's the point of rules if everyone is allowed to break them. No wonder children rule the world - we are setting such a good example...sigh..
Posted by: Niceplanharper | Jun 28, 2021 12:51:00 PM
You guys fail to see that some banks mis-informed their clients.
Also the Gov was pushing this as a action plan to help the lower-mid class save money in times of recession.
It was not titled as a "Registered Tax free savings plan", just TFSA.
72,000 people were tripped...not 10 or 20!
Guys take off the blinders and try putting yourself on the victim's side for a change.
Posted by: Coco | Jun 28, 2021 1:54:34 PM
I have the same problem because when i open my TFSA at the bank, they didn't tell me about the rules. They simple just said $5000 limit and the interest you earned is tax free. That's all they told me. The bank should advise their clients if they are in fact "over" contribute for reasons such as withdraw and deposit too many times. In fact, I dont' believe the people who help me open the TFSA account even know about this rule. In fact, those that didn't get the penalty doesn't mean they are all aware of this little glitch either, it could also mean that they are rich and have enough money that they didn't need to withdraw any out and therefore didn't need the chance to re-contribute!!!
Posted by: TJ | Jun 28, 2021 4:45:29 PM
Forget it - anytime the gov't comes up with a new program, you get it in the end anyway. GST anyone? How about the HST? and now TFSA? Store it in your mattress and hope there is no careless smoker living in the home. You may not earn any interest but you know where your $$ is at all times :) The adage, you never get something for nothing - and I am sure a lot of misunderstood clients were just thinking 'tax free' without reading the fine print. What it boils down to is you as the customer / client - you are signing the papers therefore should know what you are signing.
Posted by: TK | Jun 28, 2021 4:54:43 PM
It is a non-sensical rule that CRA put in that most intelligent people would not find. We can't possible read all the fine print. As a note, I started my TFSA with ING and after I withdrew $2000 in the year it wouldn't let me replace the monies. I was angry at them at the time, and now I realize how smart they are.
Posted by: carruthers | Jun 28, 2021 5:21:25 PM
rbark, them's fighting words, i hope no group of bankers decides to take a legal run at you for slander.....
I am not a banker, but I did find your use of the term very undermining and very slanderous of the planning profession itself. So u had a personal problem, many planners I know are honest and do know lots... but you have painted ALL planners (i.e. thosein the banks) with a malicious brush of bitterness.... and that could wind up costing you a lot more than whatever you think you may have lost in the past.
Good luck to you no matter what.
Posted by: Ken Torwald | Jun 28, 2021 6:36:31 PM
If you screwed up, pay the penalty. If your financial advisor didn't inform you, then it's up to you to read the rules and then fire your advisor. If we keep letting stupid people get away without paying any penalty, then we're in for a hell of a time.
First of all, if your taking it out why did you put it in the first place. It won't grow if you keep taking it out.
Pay the piper and shut-up.
Posted by: DG | Jun 28, 2021 6:40:33 PM
Ok so do I get my tax credit for doing the right thing and not redepositing the funds I withdrew from my TSFA. NO! So it seems those who are responsible and actually bother to educate themselves get hosed while the irresponsible careless whiners benefit. So how is that fair again?
Posted by: Nathan | Jun 28, 2021 6:53:12 PM
For everyone who is angry that there is grace in this world... how are you being disadvantaged by this exactly? Its the first year for a program, there's stuff to work out, obviously if people keep doing it, they won't be forgiven again, but considering 70 000 people messed it up, then information was not being communicated properly. I say good on you CRA for having some understanding for peoples genuine mistakes. People who did it right the first time get a reward by not having to write a letter and beg CRA to forgive them.
Posted by: not_carruthers | Jun 28, 2021 7:00:12 PM
Carruthers, you are an idiot. That's not actionable, because it's "fair comment" based on your idoitic post, but if you still want to sue me, go ahead and get my IP address and knock yourself out. By the way, if you spear me in the courtroom with your pointy tinfoil hat I'll sue your a$$ off.
Rbark, if you do rely on a financial advisor to tell you about the TFSA rules and you ended up paying a CRA over-contribution penalty, then you may be able to recover the amount of the penalty.
Posted by: Wasn't me | Jun 28, 2021 7:14:46 PM
I musr agree with Carruthers. Your Financial Advisr is now responsible for the loss. And should be held liable.
Posted by: Wasn't me | Jun 28, 2021 7:16:13 PM
Sorry, I ment Not_Carruthers........lol
Posted by: Stuart Cantrill | Jun 28, 2021 7:54:38 PM
As a professional financial planner, it is our role to know the rules and educate our clients. I think it is absurd that the government is going to let people off the hook on this, ultimately the responsibility lies with the TFSA carrier. If the TFSA carrier is unable to properly inform people when the sign up for a TFSA and facilitate them (where were they when the client put in more than the 5K allowed during the course of the year? It should be tracked) as they are intended, then they should refund their clients the difference and stop offering TFSA's. The government made rules, and institutions offering TFSA's shoudl make sure they are followed, this is no different than how we ensure clients do not over contribute to their RRSP's. If there is to be any action taken, the government should get the TFSA carrier who did not do their due dilligence facilitating the TFSA to re-imburse their clients or face losing their ability to offer such plans.
Posted by: cat | Jun 28, 2021 8:48:03 PM
Most if not all TFSA "carriers" have probably done their due diligence by posting basic TFSA rules on their website, or at the very least posting a link to the rules on CRA's website. I think it's absurd too, but at the end of the day, the government will end up paying less to reimburse these idiots than it would have paid defending the inevitable class-action lawsuit that some clever law firm would have dreamed up.
Posted by: DG | Jun 28, 2021 8:58:59 PM
Nathan
oh i'm just grumbling not everyone was irresponsible but most really should be more diligent, they tend to do wrong and expect grace without a real lesson like still having to pay income tax on the 5000 like the rest of us dolts. Frankly If my bank knew in Jan I imagine everyones should have. Straight transfers are another matter and should never be treated like this
Posted by: kruk | Jun 28, 2021 9:28:26 PM
This is another scam run by government - guess Harper is giving money right and left - and only government can count same 5000 over and over again for them 5ooo can be as much as 60000 - what they are doing is counting 5000 for each month and then charging 1% penalty or tax - whay those idiots do not instruct banks to pay at least 12% annually - this government ripp-off and they say that it is legal - makes me think twice - if I can avoid taxes I will - they force you to think