Taxpayer relying on information on CRA website faces penalty for overcontributing to TFSA

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Despite more than a decade of collective experience with Tax-Free Savings Accounts ( TFSAs ), Canadians still accidentally contribute to their accounts and face a tax penalty for over-contributions, which Canada Revenue Canada seems increasingly reluctant to forgive.

Consider the most recent case of a taxpayer in British Columbia who relied on information about the

My account section

from the CRA website to determine their TFSA contribution limit. She misinterpreted the site’s information and was hit with a tax penalty, which the CRA refused to waive, so she took the case to court. Before getting into the details of his case, let’s review the TFSA contribution rules, the penalty for overcontribution, and the remedies available.


You can contribute $6,000 to your TFSA for 2022. Depending on your age, your limit could be as high as $81,500 if you’ve never contributed to a TFSA before, since unused room automatically rolls over from one calendar year to the next. other. You can also re-contribute any TFSA withdrawals to your TFSA, beginning in the calendar year following the year of the withdrawal.

If you accidentally contribute more to your TFSA than your maximum, you may be subject to an over-contribution penalty tax equal to 1% per month for each month you exceed your limit. If you are assessed this tax, you can ask the CRA to waive or cancel it, which they have the power to do if it can be established that the tax arose “as a result of reasonable error” and that the excess contribution is withdrawn from the TFSA “without delay”. If the CRA refuses to waive the tax, you can take the matter to Federal Court, where a judge will determine whether the CRA’s decision not to waive the tax was reasonable.


In the latter case of a TFSA overcontribution, the taxpayer originally opened her first TFSA in 2009, contributing once that year, twice in 2011, twice in 2014, twice in 2015, and once in 2016. In May 2016, she received an “education letter” from the CRA indicating a December 31, 2015 contribution limit limit of minus $19,500. The letter stated that “the negative amount means you have contributed too much”. She was told to withdraw the amount immediately to avoid the 1% monthly tax, which she did, and no tax penalty was imposed.


Fast forward to 2019, and the taxpayer’s TFSA contribution limit was $7,849, but she made TFSA contributions that year totaling $26,002. This again caught the attention of the CRA who, in July 2020, sent her a letter informing her that she had overcontributed to her TFSA by $18,153, imposing a tax penalty of $1,784. .


After receiving the letter from the CRA, the taxpayer took immediate action and withdrew the excess TFSA contribution. She then wrote to the CRA asking them to waive the tax. In her letter, she said she “completely misunderstood the exact amount I should contribute.” She made two contributions, one in January 2019 and another in February 2019, in the amount shown in January 2019 on her “My Account” page on the CRA website.




The problem, however, is that the information in CRA’s My TFSA Account is not updated in real time. Financial institutions are required to electronically submit to the CRA, by the last day of February, a TFSA record showing all contributions and withdrawals for the previous year. This data may not be updated online until April, so a taxpayer logging into My Account in January 2022, for example, can only see their TFSA transactions from 2020 and prior years, until that 2021 data be uploaded into the system.




In this case, the taxpayer further explained that when she went to the website, the information displayed showed that she had enough room to make the contributions to her TFSA, so she made two contributions in January and February 2019. She argued that she made a “reasonable error” because her overcontributions were based on information posted to My Account, the source of which was the CRA. She explained that when she made these contributions, she was unaware that the “contribution room” amounts displayed in My Account could be updated to reflect additional information received by the CRA.


The taxpayer, who lost her job in August 2020 during the pandemic, was financially supporting her son who was a full-time university student, who also lost his job due to the pandemic. In addition, her mother, who has a disability, lived with her and was completely dependent on her financially. She said the overcontribution tax “was unfair and imposed undue hardship on her. The amount of interest earned on the over-contribution was less than $400…while the tax imposed on the TFSA over-contribution was over $1,700.




Despite this, the CRA denied his request for relief, writing, “Although your TFSA overcontributions were unintentional, we do not consider misinterpreting your TFSA contribution limit to be a reasonable error. . Under Canada’s self-assessment system, individuals are responsible for understanding their TFSA accounts and their limits.


The taxpayer then took the matter to court. In the Federal Court, the judge is not authorized to change the decision of the CRA even if he does not agree with it. The court only has to determine if the CRA’s decision was “reasonable”, that is, if the decision was “intelligible, transparent and justified”.


The issue boiled down to whether the taxpayer’s misunderstanding constituted a “reasonable error”. The judge, in reviewing the CRA’s decision, said that “it was reasonably open to the CRA to find that the (taxpayer) did not make a ‘reasonable error’… As is well known, the Canada’s tax system is a self-reporting system. Taxpayers are responsible for complying with the (Income Tax Act)… For the purposes of the TFSA, the taxpayer is responsible for knowing their contribution limits and ensuring that their contributions comply with the applicable rules.


The judge, while sympathetic to the taxpayer, nevertheless concluded that the CRA’s decision not to waive the penalty tax was reasonable, effectively upholding the penalty tax.





Jamie Golombek, CPA, CA, CFP, CLU, TEP, is Managing Director, Tax and Estate Planning at CIBC Private Wealth Management in Toronto.

[email protected]

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Copyright Postmedia Network Inc., 2022

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