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June 28, 2021

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



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...