The Government of Canada has decided to be “as flexible as possible” in cases where a genuine misunderstanding of TFSA contribution rules resulted in TFSA excess amount penalties. If you are one of the 70,000 or Canadians who have received a letter from the Canada Revenue Agency asking for further information about your TFSA account, you should be aware that there is no blanket waiver. You have to provide further information to the CRA about your TFSA account(s) by August 3, 2010 (the original June 30 deadline has been extended).
The Government is indicating that taxpayers whose net TFSA contributions never exceeded $5,000 can expect a penalty waiver. The excess TFSA amount penalties incurred by taxpayers who used their TFSA as a savings account and made frequent deposits and withdrawals and / or transferred their TFSA account from one bank to another by withdrawing from one and contributing to the other will be considered to be a result of reasonable error. It is not clear if taxpayers whose net TFSA contributions exceeded $5,000 are also deemed to have been genuinely confused about TFSA rules.
One wishes the financial institutions which were so eager to sign up as many TFSA accounts as possible had been a little more proactive in catching TFSA excess amount errors and warning clients that they might be running afoul of TFSA contribution rules. I wonder how many banks still have no warnings of any sort when a client tries to make a contribution to a TFSA account. When I opened an account with Ally Bank early this year, they refused to accept an initial contribution over $5,000. However, when I tried to contribute another $1.00 to my TFSA account, there were no warnings or cautions of any sort. Is it any wonder that so many Canadians have inadvertently “over contributed” to their TFSA accounts?
You can find the press release here.
