Ottawa backs down on tax-free savings account errors

Finally, the government has come to its senses about the 70,000 letters sent to Canadians who made over-contributions to tax-free savings accounts or transferred them without the proper paperwork.

In a statement issued this afternoon, the two ministers responsible for the new tax shelter said they recognized the confusion that resulted from lack of understanding of the rules. And they’re trying to make amends.

If you received a request to pay tax on your TFSA, you can wait until Aug. 3 to submit further information (not June 30, the original deadline). Moreover, you won’t have to pay tax if it’s clear there was a genuine misunderstanding.

The Government of Canada confirms that for the 2009 filing year, the first year of the program, we have taken the decision to be as flexible as possible in cases where a genuine misunderstanding of the TFSA contribution rules occurred.

Our intention is to review each situation on a case-by-case basis and, where appropriate, waive taxes on excess contributions for this year.

For instance, individuals who used their TFSA as a regular banking account in 2009, making deposits and withdrawals on a frequent basis, or who have transferred funds between TFSAs at different institutions, but whose net contributions never exceeded the 2009 limit of $5000, may not be required to pay the tax on excess contributions for this year.

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This article has 6 Comments

  1. Arman R

    Combine the tfsa with a high-interest GIC and you are gold!

  2. Torrey Dornheim

    Sure the tfsa is a good thing but seeing as how every banks interest rate sucks i am not sure i will get much in interest in using it.

  3. Enoch F

    I am just glad there is such a shelter in place. My contributions are now well over $11,000 (2009 and 2010).

    My children will have a nice nest egg when they get older and go to college.

  4. Caelan Bold

    I received a letter some time back about the tax i owed. I was in a rage about it and ended up calling CRA about it. They told me they were in discussion about this and glad to see i may not have to pay. 🙂

  5. Aidan B

    Not sure why all the fuss. All of the details were made very clear on their site. It made it clear in black-and-white.

  6. Korey W

    Yea there is A LOT of confusion around the TFSA account thing. I didn’t realize i could risk being penalized for over depositing about the $5K amount.

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