CRA nabs 103,000 people for excess TFSA amounts

August 30 2011 by Ellen Roseman

The Canada Revenue Agency has sent letters to more than 100,000 people who contributed too much to a tax-free savings account last year. They have 60 days to respond or else pay a penalty equal to one per cent a month.

Only 72,000 people got a warning last year. But the percentage of errors is lower, given the greater number of TFSA contributors.

Revenue Minister Gail Shea is promising leniency to those who made an honest mistake. I’ve already heard from a half dozen of them, including one close to home (my adult son).

The letters are going out just after J. Paul Dube, the Taxpayers’ Ombudsman, released a report saying the CRA didn’t do enough to explain the rules. In particular, many people didn’t wait a year to replace TFSA funds they had withdrawn.

He said the agency couldn’t just publish information, but had to make sure that Canadians could find the information.

Did the government create too complex rules for the TFSA? Did it communicate well enough to the banks selling — and in many cases, overselling — the new savings product?

A Canadian Press article had some criticism of the year-long blitz by the government to lessen the rate of TFSA errors.

Focus-group surveys commissioned by the agency last year indicated Canadians found the official TFSA website confusing and difficult to navigate, even after it was revamped to better highlight the over-contribution rule.

Other internal reports suggested the agency’s language in describing TFSAs to the public has been unclear.

It’s very easy to remove money from a TFSA, a factor that could underlie some of the inadvertent over-contributions.

“The risk of using a TFSA is that you may be tempted to take money out for another purpose,” says Neil Jain, founder of Money Life Skills in Toronto, quoted in the current issue of MoneySense magazine.

“With an RRSP, you’ll think hard before you withdraw from it.”

RRSP withdrawals are heavily taxed and you never get the contribution room back. I’m sure my own RRSP would be much smaller if I could tap it easily to satisfy spending urges.

So, if you get one of those CRA letters — they’re bulky, about eight pages apiece — try to put up a fight. Ask your financial institution to cover the penalty, especially if you weren’t warned about running afoul of the rules. Ask the CRA for clemency.

You have a good chance of being absolved of liability, given the confusion that still reigns in the second year of the new product’s life.

News flash: I’m giving my University of Toronto course, Investing for Beginners, again this fall on Thursday nights, starting Sept. 15. Here’s a link.

Hope to see you there if you can make it to the downtown campus.


  1. Leo Lehtiniemi

    Aug 31 2011


    The above article is good and will help many Canadians by highlighting CRA’s shortcomings in making its rules known.

    There is another and perhaps broader issue that I ran into, and that is the CRA’s deficient internal data management and CRA’s attendant practice of off-loading work that it should have done in house by burdening taxpayers, under threat of repercussions, with the obligation to provide information a second time.

    I believe this is an issue that impacts on many Canadians and raising it will touch a raw nerve.

    Thanks again,


  2. MA

    Sep 1 2011

    Not this whole thing again.

    I am one of the many more people who did not get a letter from the tax man. Why? Because I am one of those apparent “know it all people” that decided to research the TFSA, figure out what I would be penalized for, and follow the guidelines.

    Like I said, the last time you published an article like this, when you’re dealing with thousands of dollars, a good idea would be to completely understand what you’re getting into. Considering you need at least $5,001 to overcontribute ($10,001 now), it’s not something to take lightly.

    I understand the people who had the bank make an error, and they should be excused without question. Even the people who accidentally overcontributed and then withdrew the money in a quick and efficient manner, they should be excused too. But for the folks who blatantly threw extra money into their TFSA without thinking twice, no sympathy here.

    Although I’ll get ripped apart by both you and your readers for being a “know it all” that never makes a mistake, it would be nice for CRA to give out the statistics for how many people made the maximum contribution each year, without being penalized, in order to compare how many used it properly versus those who were fined.

  3. Geoff

    Sep 2 2011

    Have to agree with MA on this one. Accountability begins and ends with the person making the deposit, unless they are actually lied to.

    Your example, ING, actually does a good job of explaining the TFSA in clear language at

    Calling someone a know it all for looking before they leap is not very nice either.

  4. Geoff

    Sep 7 2011

    So Ellen does your comment above mean you acknowledge the fault lies not with the stars (or company) but ourselves (customers)?

  5. Andrew

    Sep 28 2011

    I’m being audited by the CRA. Are they legally entitled to search phone records to verify incoming & outgoing calls from my personal and business phone lines?

  6. Michael

    Oct 5 2011

    I am one of those 103,000…I put the proper amount into my TFSA with TD, then when it was used to purchase TD Mutual Funds while still in the TFSA account, CRA somehow got the idea that I had doubled my TFSA contribution…This is the 2nd year in a row I have received a letter from the CRA for the same repeated issue…I had my bank write a letter disclosing (with proof) that this wasn’t the case, the past two years, but its a nuisance to have to do this every year. Is this a TD issue or is the CRA too incompetent to do their proper due diligence?

  7. Carol

    Dec 28 2011

    US Citizens in Canada / IRS Treatment of TFSA

  8. Dan @ RewersTiemer

    Jul 23 2014

    Great article, Ellen. Certainly has brought up a few questions. TFSA’s have been a bit confusing (no matter how clear the “rules” have been written) to my young Canadians for quite a while now. This will at the very least cause us to take a second look and know exactly how TFSAs work