Did you overcontribute to your TFSA?

Last summer, hundreds of TFSA holders received a tax bill from the Canada Revenue Agency (CRA), informing them of an over-contribution to their accounts. The size of the bill depended on the over-contribution amount. Though the rules are becoming better known, there are still Canadians overcontributing to their TFSA and receiving notices from the CRA.

For many people, the bills were a complete surprise. In their minds, they had $5,000 or less in their TFSA and so had not exceeded their limit. However, the TFSA rules only allow you to contribute $5,000 in total for the calendar year.

If you deposit $5,000 and then withdraw $2,000 in the same year, you have already contributed the maximum for the year. You do not lose the contribution room but you have to wait until the next calendar year before the amount becomes available again.

For Canadians who treated their TFSA like a regular savings account—depositing and withdrawing money regularly—breaking the $5,000 contribution rule was relatively easy.

If you find yourself receiving a letter from the CRA saying you exceeded the limit in 2010, it does not automatically mean you receive a tax bill. You need to contact the CRA with an explanation and a request to waive the taxes owing within 60 days.

The government has also pledged to do more to explain TFSA contribution limits with financial institutions, to ensure this doesn’t continue to be a problem. And if you are unsure if you have contribution room available, you can always call the CRA at 1-800-959-8281 and ask.

Cleo Hamel
Senior tax pro and national spokesperson