Yes, that's the first thought that came to my mind when I received the letter from the Canada Revenue Agency that informed me I over contributed to my TFSA.
I was in disbelief when I received the letter.
I didn't think it would ever happen to me.
I even had a post titled “Watch Out for TFSA Over Contributions!” No one ever thinks it will happen to them, but it did. It happened to me too. No one is immune (haha okay maybe most people who actually keep detailed records of their TFSA contributions are immune). Although it's not very much that I had to pay (around $500 for this year and I think another $300 or so next year), I wish I knew about it earlier so I didn't have to pay the penalty for a full 6 months (and then another 6 months or so next year because I found out in June).
How I Over Contributed To My TFSA
I thought I was doing really well because I checked the Canada Revenue Agency Quick Access Tool and saw that I had X contribution dollars. It wasn't straight and easy (not simply $5000 per year) because I took out money in 2011 and was able to contribute more the following year because I made more money than the annual TFSA contribution limit. I was doing a lot of in-kind transfers from my non-registered accounts to my Questrade TFSA as well, for small amounts like $452.14 so it was hard to keep track (no excuses I know).
Anyway so I used the Quick Access Tool. I ended up thinking hey, this should be reliable since it's straight from the government. However, it was not. It was not updated and I ended up having a domino effect happen to my TFSA account and I over contributed by almost $5000 or so in 2013.
The Quick Access Tool isn't always updated on time- I checked late in 2012 when I made my contributions and it was not 100% updated and did not reflect what I had contributed in 2011 I believe. That's what happened to my knowledge.
What I Should Have Used Instead
Instead of the Quick Access Tool, if you are ever uncertain about your TFSA contribution history and want it straight from the horse's mouth, you should contact the Canada Revenue Agency and ask for a TFSA Transaction Summary. Their number is 1-800-959-8281. They will give you a verbal detailed history of all your contributions since 2009.
Another thing I should have done was not be lazy and actually use a spreadsheet to keep track of it all, instead of writing it in my little dollar store notebook like I usually do.
What To Do When You Over Contribute To Your TFSA
Here's what you do when you over contribute to your TFSA.
1) Get that excess amount out of there as soon as possible. The longer you have it in there the more penalty you get. Even if you have it in their for 3 days of that month, you are still dinged for that month.
2) Call the Canada Revenue Agency to Clarify 1-800-959-8281 and explain your situation (plead your case, whatever you want to call it).
3) Fill out that Over Contribution form, suck it up, and pay the amount (send a cheque) – you have to appease the Tax Gods, and they will reverse the amount if necessary.
4) Write a letter detailing your explanation and pleading your case. Also include the history of the contribution amounts from your account (printed out).
5) Cross your fingers and hope for the best. It will take at least 8 weeks for you to get a response from the Canada Revenue Agency.
I am currently at Stage 5. I will keep you guys posted as to what the Canada Revenue Agency decides, but so far, doesn't look good. That's okay though, it is only $500 but I learned my lesson and I hope you can all learn yours! Call your friendly service representative at the Canada Revenue Agency for a transaction summary if you're not 100% sure of your contribution history. It doesn't take a long time and it's good to make sure you and your friendly government are on the same page.
With the federal election last year you could be forgiven for not really knowing where the current TFSA contribution limit actually stands. (There was noise about the Conservatives raising it to $10,000 per year, but capping it at that point, then finally the Liberals decided to go back to the old structure of $5,500, but indexing that annual contribution room to the rate of general inflation.)
So, remember that if you take money out you have to wait until the following year to get that contribution back, but here's a quick summary of how overall TFSA contribution room has shaped up since the concept was brought in several years ago (including the one-year gift of $10,000-worth of contribution room that you can keep with you forever as long as you were 18 in 2015).