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I nagged at people on my blog to make sure they do not over contribute to their TFSA. Then I go ahead and act like a hypocrite by over contributing. :)

Ahh the Tax Free Savings Account.  So misunderstood, so lovely, and so useful.  Such a great creation since 2009 because you can contribute up to $31,000 cumulatively if you haven’t started contributing yet.  However, often with great power comes great responsibility because the Tax Free Savings Account can act like a dual edged sword if you are not careful using it properly.

How can one not use the Tax Free Savings Account properly you might ask?

Well, as you know a few months ago I wrote a post (and I guess in a way personal finance blogger confession- you know, since personal finance bloggers never do wrong or make mistakes in the money/savings/tax savings realm haha) a few months ago about how I over contributed for my Tax Free Savings Account.  You can read the whole dramatic story here and read about what steps I took to try and alleviate my situation.  As mentioned in that post, I even nagged at people on my blog to make sure they do not over contribute to their TFSA because it is very easy to do.  Then I go ahead and act like a hypocrite by over contributing. 🙂

Over contributions yield a big penalty.  Lots of interest.

As a reminder, the Canada Revenue Agency charges 1% tax on over contributions of your Tax Free Savings Account.

Anyway to recap, this is what I did when I found out I over contributed.  It took a bit of time on the phone and a lot of detective work.

1) Get that excess amount out of there as soon as possible (and Taxtips.ca concurs).  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 Gods (CRA), 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

To be honest, I thought it was a lost cause and was ready to suck up the loss of almost $500 and another $400 or so for next year (since it took me a portion of 2014 to discover I had over contributed).  Almost $1000 down the drain really sucks for a careless mistake.  It didn’t feel very good but there was nothing I could do because I did all that I could do.

Thank you Canada Revenue Agency!

Well much to my happiness, my dreams have been answered and I was very grateful when I got a letter from the TFSA Processing Unit.

I received my money that I sent back including a bit of interest (how fair is that!? Canada Revenue Agency, you are pretty cool).  It said that after careful consideration they have decided to waive all or part of any tax imposed on excess TFSA contributions, thanks to the Income Tax Act (which allows the Canada Revenue Agency to decide whether or not to do this).

However, the Canada Revenue Agency did say that if the information available or that I provided changes in any way, they can change their decision to grant relief.

Needless to say, I am very grateful for their decision and am happy that I took the steps necessary (and quickly might I add) to reverse the damage that I had done.  I will not do that again and it is a lesson learned to keep careful records of what you contribute to registered accounts!  No one else will do it for you! (Well, maybe the nice people from the government can give you an updated list of your contribution room in your TFSA).

If you would like more information on Tax Free Savings Accounts, head to the Canada Revenue Agency website for more information.

Readers, how have you fared with your applications for appeal with regards to the Tax Free Savings Account over contributions?

Article comments

Carolyn says:

This post is one of the things everyone should keep in mind. (And just in time before the year ends.)

I didn’t have any problem so far but the story of Rob reminded me to check my account on CRA to make sure that every amount in my TFSA account is reflected on the CRA’s website.

Rob Parsons says:

It’s not just your own errors you need to worry about, it’s your financial institution’s errors, as well. I have TFSAs with three financial institutions, a credit union and two chartered banks. The credit union and one of the banks have made three errors between them.

I have a mix of GICs and funds in my TFSAs. In March of 2010, I deposited a $1000.00 GIC in my credit union TFSA. In November that year year, I deposited a further $1000.00. Imagine my surprise when I see the CRA website only listing $1000.00. I called my credit union to tell them of the “missing” deposit and the gal on the phone explained sometimes it takes a while for the things to flow through the system. I explained it was the second one that was showing–the opening deposit isn’t there. “Oh!” she replied. I suggested they should send this information on, but she assured me all is there and she still was certain all would eventually show up. I accepted her word. It’s still missing four years later! Every year I get a notice from CRA telling me I have $1000.00 more contribution room than I really have.

The bank error was rolling over a maturing GIC into my TFSA with them in 2011. I’d only wanted the principle reinvested, but they included 30 dollars of interest as well. I noticed it immediately and got them to correct it, because I’m contributed to my maximum, but it appears that I contributed 30 dollars more than I really had. This still stands on the CRA website as a contribution that year. So for one day, I was “over-contributed” on my TFSA. So I guess I could be on the hook for 1% of 30 bucks some day, i.e. 30 cents, but because of the error made at my credit union, I’m apparently *way* under my contribution limit.

My third glitch happened early this year. A TFSA GIC at my credit union was supposed to pay interest into a Tax Free account, but instead it paid into my non TFSA account. I immediately called them and explained what had happened versus what I’d really wanted and asked them to move it into the TFSA section–unless that counted as a re-contribution. They assured me it would not and duly moved the funds where I’d asked. I just recently discovered they have a log that summarizes yearly transactions and, sure enough, it is not counting as a contribution–it says I’m at 0 for the year. *However* the erroneously placed interest is showing up as a withdrawal. So it looks as though, in theory, I will have even *more* extra (make that false!) contribution room next year. I just shake my head over all this. So far I have not been penalized but the potential is certainly there and one really needs to keep on top of this.

Lee Cochrane says:

I just got ‘the letter’. What a horrible experience, and I really haven’t gotten into it too far.

I called the number several times and finally after much wasted time got a gentleman who basically read the letter to me and told me I had over contributed. ‘How much’ I asked. Well, he says, you need to calculate it. Umm, I say, can you help. He gives a deep sigh and a sob story about how it will take him hours to figure it out. So I ask him to do this onerous task please. After all, they are the one telling me I did wrong.

A couple of weeks later I get a print out, which is identical to what is on the CRA website. BUT there is no information included, no tax form. As I withdrew years ago when I noticed this error (this is going back to 2010/2011) I figured they could provide a bit of service to get their money.

My annoyance is if the government is leaving it to us to be honest and file the overage information, could they not at least help out by sending the information such as next steps required, and include the forms needed?

NOT a very useful process I must say.

That’s great to hear you got the situation resolved. I can’t wait to max out my TFSA once my mortgage is paid off. It just feels wrong having $30K+ of unused room. I’m disappointed the Conservatives went with income splitting instead of raising the TFSA limit to $10K – that and the fact door-to-door mail delivery will soon be a thing of the past.