More on TFSA contributions and financial literacy

June 12 2010 by Ellen Roseman

Since I did my Toronto Star column today, I’ve heard from many people who were penalized for TFSA over-contributions or transfers. They’re also leaving comments at the Star’s website.

Here are some further points I want to make after reading their stories and reflecting on what has happened:

* The tax-free savings “account” should have been called a tax-free savings “plan”. People had the impression that they could use the TFSA in the same way as a bank account.

* Financial institutions didn’t do enough to warn customers about the risk of tax penalties if they withdrew money from a TFSA and replaced it in the same year.

* The Canada Revenue Agency explained the rules at its website, but many people didn’t do any double-checking. They relied on their financial institutions for information.

* The message that TFSA contributions couldn’t exceed $5,000 a year was clearly communicated. But the equally important message about the danger of moving money freely in and out of the account got lost.

* Thousands of people made mistakes that resulted in tax penalties far greater than their tax savings. It’s clear the system failed, not the individuals who used it.

* The minority government has an embarrassing tax fiasco on its hands. A public protest could bring some results.

* Fairness dictates treating unintentional errors with leniency in the first year that a tax shelter is introduced.

So, what can we learn from this public policy snafu? I have three ideas.

One, people pay close attention when they’re engaged in a transaction or thinking about doing a transaction. “Just-in-time delivery” is far more effective than explanations given well before there’s an intention to act.

Two, the financial institutions don’t know enough about the TFSA rules to educate customers. They should be required to hand out a one-page warning document to anyone opening a new account or making contributions to an existing account.

Three, transfers of TFSAs should not attract penalties (unless they’re part of a tax avoidance scheme). Yet many people are getting penalized for transferring TFSAs. It’s clear that financial institutions are making errors, but the burden of correction lies on their customers. That’s not fair.

Financial literacy is a hot topic these days. I hope Finance Minister Jim Flaherty and his financial literacy task force can use this foul-up as a case study of what NOT to do in communicating key messages.

Finally, I’m teaching a free course in financial literacy at Ryerson University on Tuesday, June 22, from 5.30 to 9.30 p.m. Please pass along the message to anyone who might be interested.

The workshop is co-sponsored by the Financial Consumer Agency of Canada and the Investor Education Fund. Here’s a link.

51 comments

  1. AL

    Jun 12 2010

    I read and re-read the rules before contributing. You can’t take out and reload in the same year, period. It’s a sweet deal if you treat it properly.

  2. Walt

    Jun 12 2010

    Ellen is right on the money. What was supposed to be a nice tax present has turned out to be a “gotcha”. We aren’t smiling

  3. Jason Rogers

    Jun 12 2010

    Read ALL the rules OR don’t dabble in it (ie. don’t give your money to the banks/government to handle and “save” for you, as they’re not in the business of making you money, but in the business of taking away from you… you played their card, so you pretty much asked for it when you get burned).

  4. Jacky

    Jun 12 2010

    We got bill of $100 for this over contribution. We make deposit of $5000 to TFSA in July, withdraw $5000 in October for emergency cash. Then deposit $5000 back in November.

    The guideline is misleading on making withdawals, “Depending on the type of investment held in your TFSA, you can generally withdraw any amount from the TFSA at any time and for any reason, with no tax consequences.”

    Hey, anytime, any reason?? But doesn’t mention we can not deposit back until next year. Until we have to search around, go through multiple web page to find the small fine print. Even, the personal banker doesn’t warn us the restriction.

    Please waive the penalty for the honest mistake. Also, the guideline should high light the restriction. Thanks.

  5. Dragan

    Jun 12 2010

    Rules are very simple. You have to read, understand and then jump in. If you are stupid and do not understand rules you pay the fine. Clean and simple. I do not understand HOW CAN YOU be so ignorant, make mistakes and complain that it is SOMEBODY ELSE fault.

  6. Danielle

    Jun 12 2010

    I think you made a great point in your column when you suggested the government waive the penalty the first year. We’ve all learned our lesson. The government is going to be raking it in with all our penalties for our honest mistake – not an attempt at tax invasion.

  7. Linda

    Jun 12 2010

    I opened my TFSA at TD Canada Trust with the intent of using it as a trading account through TD Waterhouse……I noticed the account wasn’t opened properly and TD moved the money….consequently I was penalized. I called TD Canada Trust, they admitted it was to be an “internal” transfer and not to worry, it was not my fault and they would look after it. I will be calling them weekly to make sure it is “looked after” before the June 30 deadline! and I would hope the CRA would give this 1st year as a “grace” period, as the financial institutions don’t seem to be knowledgeable as to how this “account” works.

  8. Cynthia

    Jun 12 2010

    My investment person at the bank explained that yes, you can take money out of your TFSA in the year, but you can not put the money back in that you took out. Plain and simple. People who didn’t know that, obviously did not read the rules in regards to this product.

  9. Amanda

    Jun 12 2010

    I would like to add something that I think is very important, and that is that I think the government needs to waive the penalty for this year, but also waive any penalties for 2010 up until this has come out. I am going to get hit again next year as I was misusing the account due to the same misunderstanding.

    Also CRA rep advised me to complete a T400A – an objection of tax to appeal the decision. The other form they advise you filling out is an absolute nightmare. It took me over an hour and I am a math teacher – the form was confusing and frustrating.

  10. Amanda

    Jun 12 2010

    Need to reply to Cynthia’s comment. I read the rules and I read the information from my financial institution and I spoke with friends, family etc.

    It was clearly stated in my bank’s documents that there is a 1% penalty on contributions in excess of your contribution. What was never clearly identified was that you couldn’t re-deposit withdrawls. That said, when I spoke to a CRA rep on the phone, it was mentioned that about 60,000 letters of a similar nature went out. I think that says something about the miscommunication.

    This account is only useful for those who have a lot of money kicking around or those who max out their RRSP room every year, otherwise, for long term savings, as this is intended you’d be better to use an RRSP and get the immediate tax refunds.

  11. Mark

    Jun 12 2010

    No, sorry. It’s still the fault of the invdividual. The customer is NOT always right.

    That said, I’m not against leniency for this first year. If anything, I hope these people stick to using a TFSA just like a savings account (cash, fixed income, etc) because if they are so ignorant that this happens, just imagine what would happen when they lose all their money when they buy some lousy stock someone suggested to them! And then of course, it’s the government’s fault that they lost money on a bad investment

  12. Brendan

    Jun 12 2010

    The rules are VERY clear. Any money you take out will be added to NEXT YEARS contribution limit.

    I hope the govt does not waive any penalties, and if they do, why not a cash “bonus” for those of us who are not stupid and understand the rules???

    I would also like to add that if a financial institution did not understand completely (UNACCEPTABLE) and gave wrong advise then the institution should cover the penalty.

    Ellan, are you sure people are getting dinged for transferring TFSA to TFSA? If so is it because of a clerical error of a financial institution or perhaps an incompetent CRA employee?

    I would like to hear more on that. The rules are also very clear on TFSA to TFSA transfers. They are allowed, as are transfers from a non registered account to a TFSA. Capital gains must be declared and taxes paid.

  13. Brian

    Jun 13 2010

    I have to agree with Brendan. If you buy any investment without fully understanding it, you are at risk of losing money.

    That being said, any financial institution that incorrectly processed transfers or gave the wrong advice should be paying the penalties for their clients.

    We’ve all had to pay penalties for things like notices getting lost in the mail and it is just part of being Canadian.

  14. Marie

    Jun 13 2010

    Amanda, you wrote: “This account is only useful for those who have a lot of money kicking around.”

    I disagree. EVERYBODY needs a TFSA to store their emergency fund (3-6 months of expenses), which should NOT be touched unless you are out of work.

    To me, the rules are clear. The banks should make it clear to their customers as well. They should include a form that spells out the basics of those rules and each basic rule should require a set of initials.

  15. Steve G

    Jun 13 2010

    Ellen, thanks for your article. It’s a relief to know that I’m not the only sucker who simply read “Tax-free” and “account” and treated his new account as a savings account without reading the terms and conditions.

    Obviously, it’s my fault that I got lumped with an excess contribution tax: the fine print was clear. In my case, however, I’m disappointed in the ease at which the bank allowed me to make some pretty obvious errors within the same institution.

    A little pop-up window saying “I don’t think you really want to make this transfer, OK to proceed?” would have saved a lot of grief …..and $148.

  16. Colleen Saunders

    Jun 13 2010

    I was very interested to read your article in The Toronto Star of Saturday, June 12, regarding the TFSA. I too was charged for contributing more than $5,000 in 2009.

    I contributed $4,000 and then had to withdraw $2,000 to cover some bills. Once I was able, I contributed $3,000 to bring my total to $5,000. Unfortunately, it was all done in the same year, causing a fine of $100, 1% on $10,000, even though my total never went over $5,000.

    To pay a fine on $10,000, when my over contribution was only $2,000, is ridiculous. I believe the Government should waive at least a portion of this fee.

  17. Natasha

    Jun 13 2010

    I do not agree with some of the other commenters that the TFSA rules were clear.

    I was told by PC that I could use a TFSA like a regular savings account as long as the balance of the account did not exceed $5000. So I opened a TFSA to keep savings for my August wedding.

    Now I’m being charged interest on $20K (almost half my annual income!), even though the balance of the account has been $0 since August.

    When I called PC to ask them if the government’s accounting could be correct, the rep I spoke to confirmed that PC staff had not understood the TFSA policies correctly, which led to them providing misinformation to their customers. Banks have a fiduciary responsibility to their clients to provide correct financial information, which they are clearly not all meeting.

    I called the CRA to discuss, and was told I should have spoken with the CRA before ever depositing money in a TFSA.

    If speaking with the CRA directly is required to correctly understand TFSA policies, I think a case can be made that the education and communication component of this program implementation has been extremely poor.

  18. shylock

    Jun 13 2010

    To everyone who thinks that rules are clear:

    Even if the rules were clear, and they were not, I received a clear answer from PC Financial at the time that all I needed to do was to keep my maximum balance below $5k, then treat it like any saving account. By the way, I realized that PC Financial was the worst bank in this problem. I’ll cancel all my accounts with them and go to a real bank.

    Regardless, even if the rules were clear, it shouldn’t give an excuse to the government to behave like shylock. Does it give them an excuse to charge me $380 when the total interest I earned is $30? This is shylock’s way: cutting a pound of our flesh!

    The law itself is set in an devilish way, and when I see the cold response from the government, I know that it’s accompanied by an evil laugh and the word “Gotcha.”

  19. Kyle

    Jun 13 2010

    This is from government website:
    How the Tax-Free Savings Account Works

    * Canadian residents age 18 or older can contribute up to $5,000 annually to a TFSA.
    * Investment income earned in a TFSA is tax-free.
    * Withdrawals from a TFSA are tax-free.
    * Unused TFSA contribution room is carried forward and accumulates in future years.
    * Full amount of withdrawals can be put back into the TFSA in future years.
    * Choose from a wide range of investment options such as mutual funds, Guaranteed Investment Certificates (GICs) and bonds.
    * Contributions are not tax-deductible.
    * Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
    * Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
    * TFSA assets can generally be transferred to a spouse or common-law partner upon death.

  20. Rob Fraser

    Jun 13 2010

    I’m one of many in the same boat, an honest nursing student trying to become financially independent. I’m also in the same boat that you are all talking about, the one that is being torpedoed after trying to become better at saving. I took out a few thousand to pay tuition, then quickly put it back when I got some more scholarships. Nope, not allowed.

    Thank you for writing about this, I’ve taking the time to submit comments to the PM, Flahtery and my MPPs I hope everyone else does the same. We aren’t all bankers, and we definitely are not all trying to launder or hide money from the government.

  21. David

    Jun 13 2010

    I find it hilarious that these 40 and 50 year old baby boomers act like children. I’m 23 years old and knew these rules quite clearly.

    I had to withdraw some money from my TFSA last year and because I educated myself and contacted TD, I had to wait until this year (2010) to redeposit.

    Plus, I once made a mistake and transfered from a TD Canada Trust TFSA to a TD Waterhouse account. I didn’t realize that counted as a withdrawal, but when I contacted TD they reversed the transaction for me. A nice gesture, which they didn’t have to do, but they saw that I took the initiative to call them and learn what I did wrong.

    For those who got dinged, suck it up and pay it before your interest and penalties start accruing. There will be no 1-year grace period and your penalties won’t be forgiven.

    If you decide to take personal control of your investments, you take all responsibilities for these kinds of things. If you want to avoid making these kinds of mistakes, then place your TFSA with a financial advisor and have them do the investing.

    I’m sick of my parents’ generation making these mistakes and then crying that they weren’t educated enough by the government. Grow up and take responsiblity, so my generation Y (and X) has to stop bailing you out.

  22. David

    Jun 13 2010

    Also, these are registered accounts (RRSPs, RRIFs, RESPs, TFSAs) and they all have lots of and different rules. If you don’t accept responsibility for these rules then you shouldn’t be opening these acounts.

    Furthermore, I guarantee that when each and every one of you opened up your TFSA you signed a couple pages of documents which contained these rules and that you acknowledge having understood them.

    Read things before you sign!

  23. James

    Jun 13 2010

    Look at David there, 23 years old and knows everything and smug as hell!

    Listen, I never made a mistake with the TFSA and I know the rules too. That doesn’t mean I turn into a smarmy jerk about it and try to lord it over everyone else.

    The rules are quite simply NOT clear to the majority of people, since many bank employees are not clear on what the rules are themselves. No one should have to go on a search mission throughout cyberspace to determine what the rules are. They should be laid out clearly when opening such an account.

    In closing, I can only say that David’s comments are a bit rich, considering it’s his generation that demands so much attention and thinks the world revolves around it.

  24. James

    Jun 13 2010

    Oh, and I should add that many people open these accounts on the telephone. So much for your guarantee that they “signed a couple pages of documents which contained these rules and that you acknowledge having understood them”.

  25. Anne G

    Jun 13 2010

    After reading your article in the newspaper which I forwarded to number of people, I can see what happened regarding our own TFSAs.

    Our financial institution changed brokerage firms and so our TFSA investments were transferred from firm to another without any cashing out on our part.

    I wonder if this was the cause of the assessment from CRA.

    I hope CRA and Minister Flaherty change the TFSA policies so that Canadians aren’t penalized for an excess deposit when there isn’t one as in our case.

    Thanks for your great work.

  26. Ian

    Jun 13 2010

    I hope this turns into the same Waterloo for the Federal Conservatives that the HST has done for Campbell.

    This 1% penalty is usurious, unfair in relation to a misreading of the complicated rules of the new TFSA.

    I think only IDIOTS say that every person should spend a huge amount of due diligence before making any seemingly straightforward investment. Dealing with the federal Conservatives is worse than dealing with the Big Banks.

  27. Fernando

    Jun 13 2010

    I opened an Account in January 2009 for myself and my wife with our $5,000 limit each.
    I was actively withdrawing and topping up my account right up until Dec 31st 2009, never exceeding my $5,000 maximum and carried forward until June of this year believing it was now $10,000.
    June 7th changed everything. The day the Governement of Canada decided to finally warn me along with other duped Canadians into the ultimate Tax penalty grab, costing me almost $300 for just 2009, God knows what I’ll get charged with in 2010.
    In talking to CRA, I new I wasn’t alone in this.
    I’m all for considering legal action against my Bank and the Government of Canada, for lack of disclosure.

  28. Caelan

    Jun 13 2010

    “In closing, I can only say that David’s comments are a bit rich, considering it’s his generation that demands so much attention and thinks the world revolves around it.” – James

    Boy, do I ever agree with you, and I say that as a parent of a 21 year-old son.

  29. brak

    Jun 13 2010

    All those people who say the rules were clear are missing the point. One of them should also get a life, I’m young and have better things to do than study tax law for a few thousand dollars of savings. The fines that the cra is levying on the overpayments is the problem, they can be hundreds or thousands of times more than the actual benefit gained. Not only this, but the letters are coming out a year and a half after the fact. If they are going to make predatory charges against people, the least they can do is issue a statement the month after payment is due. To wait this many months while the penalty is accruing, and then give a few weeks to pay the penalty, is outrageous.

  30. G

    Jun 14 2010

    The rules were clear, simple, easy to understand and readily available from many sources.
    BUT, you have to make the effort to read them.

    Don’t try to blame your ignorance on the government or the CRA. Don’t act like a baby, “my mummy didn’t tell me and I can’t read”

  31. G. C. Hodgson

    Jun 14 2010

    I feel sorry for people who’s institutions screwed up the transfer process but to all others I say stop the self-entitled whining, pay the penalty and consider it a life lesson. The rules were clear and available from many different sources for a long time before TFSAs were introduced.

    And anybody who blindly trusted their bankers were naive. I learned that lesson many years ago when several bank managers lied to my face about the status of one of my accounts. Since then, I scrutinize everything they tell me, seek different opinions and go to primary sources such as gov’t websites whenever possible.

    It’s up to you to protect your own interests because, ultimately, nobody else will.

  32. Ian

    Jun 14 2010

    People should consider the “fairness provision” of CRA.

    http://www.cra-arc.gc.ca/gncy/frnss/prv_2-eng.html

    If CRA was slow in notifying you of the error, then you should file a request.

    If they do not accept your claim, you can ask for a reevaluation.

    Taxpayer relief provisions 2. Circumstances in which penalties and interest may be cancelled or waived
    We can forgive penalties and interest when they result from circumstances beyond a taxpayer’s control, including:

    •natural or human-made disasters, such as a flood or fire;
    •civil disturbances or disruptions in services, such as a postal strike; or
    •serious illness or accident, or serious emotional or mental distress (e.g., death in the immediate family).
    We can also forgive penalties and interest when they result primarily from the actions of the CRA, including:

    •processing delays that result in a taxpayer not being informed, within a reasonable time, that an amount was owing;
    •errors in CRA publications or incorrect information provided to taxpayers;
    •delays in providing information, such as when a taxpayer is unable to make a payment because the necessary information was not available; or
    •processing errors that result in a taxpayer being unaware of certain obligations.
    We can also forgive interest when taxpayers cannot pay amounts owing because of circumstances beyond their control. For example:

    •when collection has been suspended because of an inability to pay caused by the loss of employment and the taxpayer is experiencing financial hardship; or
    •when a taxpayer is unable to conclude a reasonable payment arrangement because the interest charges absorb a significant portion of the payments. In such a case, the CRA may waive all or part of the interest for the period from when payments commence until the amounts

  33. Simuls

    Jun 14 2010

    I have also been dinged because my bank specifically said that it can be used as savings account – just as the name implied, so I moved money in and out over the course of the year but never in any way to avoid tax over the $5000 limit. Personally, unless this is specifically targeted at the wealthy who have an extra $5000 sitting around that they can’t use, this seems wrong. If the intent is to help people earn interest and save tax free, then as long as you don’t exceed the $5000 limit there is zero, absolutely zero downside to the government. It needs to be fixed immediately!

  34. aerosmith

    Jun 14 2010

    I am also penalized with the over contribution and I feel ditched by the Government.

    For all those who are telling us to stop whining, why should we? Do you know how much penalty the Government is asking for? And why should we pay the excess?

    If the Government really wants to penalize, why not ask us to simply pay the interest over the overpayment. It is not that the Government is running a business here. It should be fair.

    What if I start whining about the health care? Why should I pay for the health care and even the CPP that I am not guaranteed of?

    I would say the Government should consider waiving this penalty for this year and then launch a campaign to advertise this more. I am not sure how many more taxpayers would be doing the same thing next year.

  35. Joann

    Jun 14 2010

    I am not stupid, but I am busy. I would expect the simple notion that you can’t put the money back in during the same year would be communicated.

    I read the rules on my financial institution’s website. It says you can take the money out without tax penalty, but doesn’t say you can’t put it back in.

    I think that is deliberately misleading and they should be accountable.

    I also think the government should absolutely waive the penalties, last year and this year. They clearly didn’t do a good job communicating the rules. It would have taken one simple sentence, front and centre.

    I probably would have paid about $13 taxes on the interest I earned. Instead, I owe them $420. Is this how our elected government represents our interests as Canadians?

  36. Bill

    Jun 14 2010

    I took out a $5000 GIC in February. The interest rate was adjusted in March and the transaction was treated as a second deposit, rather than a correction, in the eyes of Revenue Canada.

    My financial institution is trying to sort out the matter to enable me to reclaim my $450 penalty.

    Whether in the details or not, one ought not to have been penalized if the amount in a TFSA at the end of the year is no more than allowed.

  37. Ellie

    Jun 14 2010

    My husband and I both fell victim to this error. Yes, we didn’t read the fine print closely enough. But the banks also went out of their way to advertise it as a savings account and stress the advantages of having access to your money any time you want, which it clearly isn’t and clearly doesn’t provide.

    Being charged more in penalties than the whole account earned in interest strikes me as really unfair.

  38. MA

    Jun 14 2010

    David up there made a very valid point. I myself am only 24 years old and I opened up a TFSA in Feb ’09 and never onced talked to a rep about details for the account.

    I went into President’s Choice Financial, added the account (after researching on my own what the rules were) and deposited my $5k.

    To blame the errors on PCF is pretty childish. Take a second to remember that you’re banking with PCF, where you don’t pay any fees.

    This should translate to: “Customer service reps might not be 100% accurate, so maybe I should do a little research on my own.”

    To sum it up: I’m 24, I opened my own TFSA, and although I may seem smug about it, I didn’t get dinged by any fines for not reading rules.

  39. SC

    Jun 14 2010

    Yes, we all should have read the fine print before we opened the account.

    But my issue is we are not benefitting from that so called “excess contribution,” as the funds are not in the “saving account” earning interest.

    And we are not claiming that “excess contribution” or any portion of the deposit to the TFSA as a deduction in our income tax return.

    It is different from that of the RRSP over contribution, where we claim/deduct the deposit amount before the tax is calculated.

    So how can the government tax us on our after-tax money when it is not actual cash in the account? It’s a transaction of withdrawal and re-deposit, or money transferred between accounts.

    What counts should only be the account balance at any given time, not how much is deposited, regardless of the withdrawal before it reached the “contribution” limit.

  40. Neil Kong

    Jun 14 2010

    I cannot believe I am facing a penalty of $522, only because I withdrew and recontributed. Without a TFSA, I may face tax to be applied to the interest only, not the principal.

    Let’s say for $5,000, all the interest I may earn is $150. Even with a tax of 50%, it only costs me $75. Now, I am facing more than $500. It is ridiculous.

    The CRA makes TFSA too complex and dangerous. At least, they should be more tolerant in the first year.

  41. Eva

    Jun 16 2010

    Hi everybody,
    I also got the nasty surprise in the mail from Ottawa last week. In my case it was relatively simple. In March 2009, I set up an account (PC) and I wanted to contribute $4,000, I made mistake in decimal point during the transaction, (I’ve got disturbed by my hyperactive kids) and so I actually transfer $40,000. Shortly after when I checked my chequing account, I realized the mistake (obviously almost all money gone), so I transfer money right back, only it was Friday and so the transaction did not appear until Monday, but it would not really matter in this case. Over contribution of $35,000 was already executed, and for that my dear Canadian government is asking me to pay $350 in penalty. Not cool!
    Eva.

  42. Michael

    Jun 16 2010

    In my case, here are my transactions. I wonder if there is any math/accounting whiz kid who can calculate what’s the total amount I should pay 1% penalty on for 2009?

    Hint: my penalty requested by Ottawa is about $60.

    Jan. 5: Deposit to PC account, $1000.21 and $3900.

    Jan. 14: Withdraw $1201 (PC) and Deposit (to ING) $1300.

    Feb. 23: Withdraw $1005 (PC).

    Feb. 25: Deposit $1000 (to Dynamic Fund).

    Then, for the rest of the year only withdrawals were made:

    May 28: $2717.24 (PC).

    May 29: $1308.44 (ING).

    June 2: $1.46 (Closing ING account).

    June 6: $2.18 (Closing PC account).

    As you can see, at no time there was over $5000 (total) on my account(s).

    I can’t even dispute this amount. After few hours of trying, I was unable to fill in the form RC264-CSH-A.

    I called a tax office on June 8 and asked if somebody could explain the charges and help me fill in the above mentioned form.

    First officer I spoke to sounded quite irritated that I was even asking for an explanation on how they came up with my 1% penalty on $6000. She tried to quickly calculate the number, but came up with a number about 5 times different then mine.

    Then when I asked again to explain how the actual number was calculated, she said she already explained it to me and hung up the phone (this call lasted about 5 minutes). Unfortunately, I did not note her name.

    I called back and asked again if somebody can help me to fill out the form RC264-CSH-A. This time, I asked the officer’s ID number and this time the officer at least was trying to actually help me.

    After a while, she put me on hold for about 10 minutes, so she could try to fill out the form by herself. When she got back to me, she was able to fill the form for first month, somehow for second, but not for March. At the end, she said to write a letter to the Ottawa office. This call lasted about half an hour and I still didn’t get much help.

    Why is it so complicated, that with only 10 transactions a year, it’s practically impossible to fill out this form ?!

    Also, I wonder why they don’t send the RC264-CSH-A. Instead, they only send RC263-P-E with the total amount filled in the line 1 of Part A, that is supposed to come from RC264-CSH-A.

    The Tax Free Saving Account was a great idea, but it’s been very poorly implemented.

  43. AJ

    Jun 16 2010

    Michael, I’ll take a guess.

    Your Jan. 14 contribution put you in an $1200 overcontribution for the month of January. The $1201 you withdrew first didn’t free up contribution room in 2009.

    Overcontribution continued into February. Withdrawal on Feb. 23 would have reduced the overcontribution, so you would have been only $200 overcontributed in March, but you recontributed on Feb. 25.

    The $1200 overcontribution continued until May 28 when you withdrew $2700, so you weren’t in an overcontribution state for June and following months.

    A $1200 overcontribution for five whole or part months X 1% is $60.

    Not that I think that’s necessarily fair, I’m just guessing that once you were in an overcontribution position, withdrawals were considered, but only to the extent of reducing the amount of overcontribution.

  44. Michael

    Jun 17 2010

    First, I am sorry, I made a mistake, it’s not RC264-CSH-A, but RC263-CSH-A.

    AJ, thanks for the replay, you are close. Letter from my Dearest government is asking 1% on $5986.05. Call me nuts, but I am just trying to precisely understand how do they calculated this.

    Also, even if I can come to the exact number by calculation, it’s a different story to try to fill out the form RC263-CSH-A.

    Cheers.

  45. Greg

    Jun 21 2010

    There is a reason why the rule is there. The government only gets told the total amount of withdrawals at the end of the year. If you were allowed to withdraw and redeposit $5,000 say 10 times in the year, someone else could just as easily make a $50K deposit on Jan 1 and withdraw $45K on December 30. The government wouldn’t know the difference. So they have to have the rule to avoid abuse.

    The institutions are the ones at fault here. Apart from not mischaracterizing it as a “savings account”, all they had to do is caution anyone making a withdrawal that it couldn’t be replaced until the next year.

  46. vera schuster

    Jun 22 2010

    Lots of publicity re investing $5000 in TFSA but little to warn buyers beware of pitfalls assoc. with. as a senior i particularly resent this approach. feel the govt should waive these penalties and present a more honest consumers aware program. Im sure the govt is gloating over $$$$$$ in its coffers Shame on you our “elected voice”

  47. John

    Jun 22 2010

    Common sense is an uncommon virtue.

    Avoid ALL ‘plans’ (yes, that includes ‘funds’, tax free savings, IRAs/RSPs) that originate from the Banking/Brokerage/Insurance consortium.

    Do your homework, spend a year or two learning how to invest…and handle it all yourself.

    NO ONE looks out for your best interests as well as you do.

  48. Matt

    Aug 21 2010

    Hi Ellen, Could you follow up with the Minister or CRA about the updated status on these penalties?

    I replied to the assessment in late June with a $1,200 penalty, but CRA has not returned my cheque. I am retired and cannot afford to lose $1,200.

    Greatly appreciated!
    Matt S

  1. TFSA Excess Contribution Penalties Ensnare Taxpayers | Canadian Capitalist
  2. TFSA Excess Contribution Penalties Ensnare Taxpayers | MoneySense