One Way to Handle TFSA Assessments from the CRA

I had a nice conversation this morning with a chartered accountant (CA) with who I work regarding assessments raised by the Canada Revenue Agency (CRA) relating to the Tax Free Savings Account (TFSA).   I made notes of the conversation, then called the CRA to run the scenario by them.

They agreed with this process.

These recommendations are just that, recommendations, relating to relief for those assessed with penalties for over-contributing to their TFSA.

Write a letter to the CRA asking for relief.  Send the letter to the following address:

TFSA Processing Unit
PO Box 9768, Stn T,
Ottawa, Ontario
K1G 3X9

In the letter, make sure that you include:

• Your Social Insurance Number (SIN) as it is the reference number to your TFSA account;
• The circumstances and facts which led to the over-contributions.  As an aside, if you knew you were putting in too much – you might not want to include that fact;
• The actions you took to immediately remedy the situation as soon as you found it that you had contributed more than you were allowed;
• The financial institution you have your TFSA with, and any related account numbers as that institution (the CRA loves to look for patterns – possibly a specific institution is not notifying their clients of the perils of over-contributing or maybe a flag is missing on their system to notify the account manager once an account goes into penalty-territory;
• Any supporting documentation – written confirmation or statements from the financial institution – if it was their fault, and to show that you rectified the situation as soon as possible);
• Also make sure to include a copy of the letter you received from the CRA notifying you that you are being charged penalties for the TFSA account.

Unlike a Taxpayer Relief application available in the Income Tax Act (ITA) and Excise Tax Act (ETA) there is no formal relief process known to be used by everyone currently, so this soft approach has been used and with success.

The CRA may, at their discretion, lower or completely reverse the assessed penalty, or they may send you back a letter asking for payment of the penalty.

It is certainly worth an attempt.

If you have been assessed a penalty for over-contributing to your TFSA and are either too busy or would prefer the letter be written by a professional firm, please contact us and we would be more than willing to assist you in this process.

#Intaxicating

2013 TFSA Annual Contribution Limit Increase

On November 26th, 2012, The Canadian government announced that it had boosted the limit on its popular Tax-Free Savings Account (TFSA), by $500.

Beginning next year, the ceiling will be $5,500 a year.

When it introduced the savings vehicle in 2009, the government said the $5,000 limit would move in $500 increments tied to inflation. This is the first year that’s happening.

“An additional $500 in annual TFSA contribution room can have an important impact on the amount of tax-free savings an individual can earn,” the government said.

“Over a 20-year period, an individual can accumulate significantly more in TFSA savings than under the original $5,000 annual contribution limit. For example … a middle-income saver could accumulate about $2,340 more in tax savings on their investments than if the additional investment had been made in a taxable savings vehicle (unregistered account).”

The TFSA has been popular since it was introduced, though recent surveys suggest Canadians still need more education.

The latest survey by Bank of Montreal showed less than 50% of savers are putting in the maximum of $5,000 a year, though 57% say they will go to ceiling within the next five years.

But while 60% of those polled claim to be “knowledgeable” about the savings vehicle, only 44% knew the contribution limit and 37% didn’t know what TFSAs can hold, such as stocks and bonds.

See the government’s calculations, here.

Logo that appears on Canadian government documents (Photo credit: Wikipedia)

 

Related articles

• Tax-free savings account will increase (reddeerconservative.wordpress.com)
• TFSAs grow up: Why RRSPs now have some serious competition (business.financialpost.com)
• Ottawa bumps up TFSA limit by $500 (business.financialpost.com)
• TFSA News (canadianmdinvestor.wordpress.com)