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Last year when TFSA was introduced I opened a few accounts at different institutions (TFSA savings accounts) and did some surfing across the accounts last year to keep the $5,000 initial TFSA deposit sitting in the bank that had the highest rates at the time. The total amount in all accounts at any one time does not exceed $5,000 limit (I surf my non-TFSA savings accounts regulalry to maximize the interest.)

Then I read that CRA might consider this as overcontribution and I stopped surfing. Note that the total amount in all my TFSA accounts at any one time did not (still does not) exceed $5,000 year 1 limit. Last year I spoke with CRA and they said to sit tight, because there was a lot of confusion on TFSAs last year and in my situation there may be forgiveness.

Well now it's tax time. And I have not received any communciation from CRA (nor has my accountant) on my TFSA surfing.

Does anyone on the forum have any insight into what CRA is doing with situations like mine?

Thanks
 

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my wife had a slight over contribution and this happened only in the last week of december. they have reduced the contribution room for this year by the amount of over contribution. we are not sure if we have to be proactive and pay the fine or wait for them to ask me for the fine. i will probably know when i get the notice of assessment.
 

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jtmann ... I don't know what CRA will do, but I would not be surprised if they let you have a mulligan for 2009.

rookie ... I assume you're joking about "proactively" sending money to CRA ... obviously, don't pay them any fines unless and until they send you a bill.
 

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JtMann - If I'm reading your post correctly then you went way over your contribution amount. I'm not sure what you mean by "surfing" however.

When you do a withdrawal from your TFSA then the amount gets added to your available room but ONLY STARTING THE FOLLOWING YEAR.

So if you contributed $5k in Jan of 2009, then in March 2009 you withdrew it all and contributed $5k again then you are now over by $5k.

That said, you can do TFSA transfers within institutions which means there was no withdrawal from the TFSA and you won't have any problem. Did you do this?

The actual account balance doesn't matter, it is the contribution amount that is relevant.

Rookie - The penalty is 1% of the over-contribution per month. I'm not sure how it gets applied - you might want to contact your financial institution.
 

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rookie ... I assume you're joking about "proactively" sending money to CRA ... obviously, don't pay them any fines unless and until they send you a bill.
Rookie - The penalty is 1% of the over-contribution per month. I'm not sure how it gets applied - you might want to contact your financial institution.
well the over contribution was by just over a 100$ and for half a month which makes the penalty a meagre 50c. i did talk to the person who was my financial advisor (wise enough to do the math resulting in over contribution). i wanted to see if rbc would absorb the penalty (before i knew it was 50c) for it was their mistake. this is what he had to say after consulting his "experts":

the overcontribution remains in ur tfsa unless u withdraw it. the 1% interest is only till the end of the year.

so i brought up a hypothetical scenario - what if i over contribute by 10k on dec31? i would pay penalty of (1/31)%. starting jan1, there will be no penalty and then the 10k can grow interest free for the rest of my life. the contribution limit for next year would be 5k again. he said YES!!! but "I suggest not to do it. TFSA is still a new tool and the govt is still in the process of finding out practical implications such as these".

HE WAS SO WRONG!!!!

cos like i said, if i checked the epass a/c, it shows the contribution limit for 2010 at 4800 something considering the overpayment we had in 2009
 

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Hello all - long time reader, first time poster.

So I got a bill from the CRA this week for my TFSA over-contribution in 2009.

The TFSA was advertised as and understood by me as literally, a savings account in which the interest produced was tax free. I thought money could freely be deposited and withdrawn from the account as long as my deposit balance never exceeded $5000 in a single year. I contributed $5000 in January 2009 to a simple just-barely-more-than-zero interest producing account at my local President's Choice bank account as I needed the funds to be liquid and readily available.

In July 2009, I pulled out the entire $5k (I left the interest accumulated thus far) to contribute to the purchase of an investment property. In August 2009, I had some more money saved up, so I put $5000 back in. PC bank certainly didn't discourage me from doing this -- my understanding again was that this was like a savings account in which the interest produced was tax free!

In the period from August to December 2009, I received a grand total of $18.28 in interest payments from PC bank.

Late in December 2009, I learned that what I did would be considered an over-contribution by the CRA, so I did not follow through with my plan on contributing a further $5000 in January 2010.

Based on the advice listed in this thread ("obviously, don't pay them any fines unless and until they send you a bill"), I did nothing and hoped that I'd qualify for that "mulligan" referenced above.

This past week I got a bill from the CRA in the amount of $250 (1% of $5000 = $50 for 5 months (Aug to Dec)). I think it is just wrong that I would have to pay $250 of my money, espcially when I only made $18.28 on what I did. I certainly was not trying to abuse the system at all (if I was, I would put the money somewhere else). If the point of the penalty is to educate me, I feel that I am now already educated and guarantee that I won't make the mistake again. I am willing to give back the $18.28, but I just don't feel right giving the CRA $250! I certainly can't be the only person to make this mistake. The CRA is going to make a windfall on all these penalties - wasn't the goal of introducing the TFSA to encourage people to save; I'm going to have a net loss in 2009 with TFSA if I truly pay what the CRA is asking for.

Any advice on what I can do to ... um... get out of this $250 penalty? Do I have a case here? Can I just send in a cheque for $18.28 with a note that says "sorry, won't happen again"?

Thanks.
 

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Hello all - long time reader, first time poster.
Hello Explorer: welcome to the forum. :)

You certainly were not alone in the confusion & believe it or not, even some bank employees were confused big time!! :eek: I found this out when I went to my financial institution to sign papers to transfer my TFSA from another bank into my direct investing account. The bank employee had the same understanding you had & said: "just go to the other institution and close the account, that will be much faster than filling out forms". I said no, that that would be considered withdrawal and not a transfer and that the withdrawal portion could not be re-contributed until the following year and the employee continued to politely argue that I was mistaking TFSA rules with those of RRSP. He even read the TFSA rules on his PC and continued to say that I can withdraw & redeposit without tax consequences. Good thing I knew my facts, otherwise, I'm not sure the bank would have owned up to their mistake.

On Monday, CTV's Pat Foran will address the issue of how to recover the TFSA taxes people were charged 'unfairly', so if you have time, watch him and/or check his website.

Good luck & happy money exploring!;)

http://www.torontowebsites.com/patforan/
 

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WHat the??????? CRA penalized some one for transferring From a TFSA to another TFSA?

Sounds like someone at CRA doesn't understand the laws.

I understood you could transfer TFSA to TFSA and be alright.
I also understood that transfer from (whatever) to a TFSA = bad.

But to me the rules about withdrawing and redepositing are clear.
5K per calendar year. ANy withdrawal cannot be re deposited until NEXT calendar year.

If a bank told someone they could re deposit in the same year then the bank should reimburse the individual.

This article appears to be flawed. It makes it look like transfering from a non registered account to a TFSA is wrong. It is not. As long as the value is = to your limit, AND you declare capital gains you are fine.
I did this last year with no problems.
 

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bean, I am not sure I agree with everything you have said. But maybe I have misunderstood you.

Why do you mention a capital gains declaration in your post? You have no capital gains to report on ANY TFSA money.

I also disagree that transferring from something else to a TFSA is bad. Why would anyone care where the money is coming from?

I don't think banks are at fault. My bank was very clear about the rules for TFSA as I suspect all of them are. I think it's the users who have misunderstood. And the way people mismanage their money these days I really wouldn't be surprised if the fault were with them. In most of the examples mentioned in the 'the star' article, the users were at fault. No one else.

Sorry if I've misunderstood you.
 

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If one contributes investments in-kind from a non-registered to a TFSA account, then that is treated as having sold the investment under the unregistered account & potentially resulting in capital gains. I haven't done it myself, but I believe that is how it works.
 

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Why do you mention a capital gains declaration in your post? You have no capital gains to report on ANY TFSA money.

If you have investments in a non-registered account and you transfer into a registered account (RRSP or TFSA) you have a "deemed disposition" of those investments. They are considered sold for tax purposes and if you have a capital gain, you have to declare it an pay tax. If you have a capital loss you are not allowed to claim it.


For what it is worth, all these whiney morons who overcontributed should not be permitted to manage their own money. They are clearly not capable of understanding basic rules.
 

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Yeah I had to pay $50 to the gov for my stupidity... oh well. I really was just moving the money from one institution to another.
 

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Royal, you misunderstood, or maybe I didnt type properly. Others have explained it to you on my behalf, thanks!

If an institution treated a transfer as a withdrawl then they should be held accountable.

But for everyone else (trust me I HATE siding with CRA) I am sorry but the rules are very clearly spelled out on CRA's web site.

One person even tries to blame PC financial of lieing to him because they called their TFSA a "high interest tax free savings account". He obviously didnt read the yellow highlight part that explains the penalty, nor did he read the footnote that explains adding withdrawls to next years contribution limit.
 

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Thanks everyone for clarifying. I think I understand. When the money is transferred from somewhere else, it is treated as sold and then cap gains are then payable. Makes perfect sense. But then bean wrote this...

If an institution treated a transfer as a withdrawl then they should be held accountable.
Huh? If the money was transferred from elsewhere into TFSA why should the bank be accountable? You can't enjoy tax sheltering on the pre-TFSA life of that money by thinking you can transfer it to TFSA and have it be protected. A non-registered GIC is a good example. If you bought it at $2K and it grew to $2500 then you owe tax on that $500 cap gain. What you do with that money afterwards is up to you. Just be ready to pay the tax on the $500 at tax time/year end.
 

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But then bean wrote this...

Huh? If the money was transferred from elsewhere into TFSA why should the bank be accountable?
The original Star article was referring to a TFSA-to-TFSA transfer, which should not attract any taxes, but did.
The case of Mr. Witold Borozynski is very clear. It was a direct transfer and doesn't seem like he got hold of the money anytime during the transfer, so it should be a qualified transfer as per CRA definition.
I think this is just the bank being ignorant or careless and reporting it as contribution to CRA.
I guess even in this day and age, it takes 2+ years to iron out the kinks in the accounting system.
 

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I think what bean meant was if you deposit 5K and transfer it to another institution, and the institution making the transfer makes an error by refunding it, then transferring it for example, then the institution should be responsible.

Which they should. They are relatively new accounts, so the banks will probably make a few clerical errors.
 

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Thats exactly what i meant. The 2 words transfer, and withdrawl mean 2 different things.

It boggles my mind how many people are getting penalized over this.
In some cases people clearly didnt understand the rules, or the took the money out of account a and opened up account b rather than transferring from a to b.

It is no different than deregistering an RSP as opposed to transferring.

I also meant that if a bank made the error they should cough up the penalty.
 
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