There are many penalties from CRA to Canadian individuals but we just have to mention this one specifically. Why? because TFSA over-contribution happens very often.
Let’s first get a quote from a CRA spokesperson who appears to be saying that the TFSA contributions will be forgiven if it is an “honest mistake”.
Because we are reviewing each and every situation on a case-by-case basis, it’s correct to say that relief may be provided,” CRA spokeswoman Caitlin Workman said Wednesday. “Each case will be looked at with the facts at hand, so I’m a little wary of issuing a blanket statement. If it was truly an error – that’s what we tend to look at.
So what is the rule for TFSA contribution limits?
- Every Canadian who is 18 years of age or older, gets $5,000 of contribution room per year for the years 2009 to 2012 and $5,500 for the year 2013 and beyond.
- If you make a contribution, then the amount of available contribution room is reduced by the amount of the contribution.
- If you make a withdrawal, then that withdrawal amount will be added to your available contribution room, starting January 1 of the following calendar year.
What is the TFSA over-contribution penalty?
- The TFSA over-contribution penalty is 1% per month, levied on the amount of excess TFSA contributions.
- If you have over-contributed to your TFSA by $1,000, then the penalty will be $10 per month until you have removed the excess amount, or more contribution room becomes available.
Why TFSA over-contribution happens?
- Most of the time the Canadian taxpayers inadvertently created an over-contribution simply because they didn’t know the rule (withdrawals from a TFSA account only get added to their available contribution room on January 1 of the next calendar year).
- Some other times it’s related to the tax residency status change (a taxpayer becomes to non-resident)
What our professional team can do with your TFSA over-contribution penalty?
- Simple, we talk to CRA on behalf of you in order to waive the penalty.