A big issue with the new Tax free savings accounts (TFSA) was revealed this week when the Canada Revenue Agency announced that it had issued more than 70,000 letters to taxpayers for penalties related primarily to over-contributions to TFSA accounts. Many people misunderstood the contribution rules which dictate that any withdrawals taken during the year may not be re-contributed until the year following if you were already at your contribution limit when the withdrawal was made. The penalty applied is 1% per month for each dollar of over-contribution until withdrawn.
The good news today is that the CRA is aware of the confusion and is prepared to look at each individuals situation on a case by case basis for possible forgiveness of the related penalties. You can see more here on the issue courtesy of the Globe and Mail.
The moral of this story appears to be that it is important to understand how tax rules apply, particularly to new tax vehicles such as the TFSA. If you require assistance in appealing an over-contribution assessment or would like to ensure that you do not go offside on future transactions please consult your tax advisor.
More good news: The CRA has again announced (June 25, 2010) that it will be as lenient as possible on appeals from taxpayers facing over contribution problems and have even extended the appeal date for those who received notices to August 2, 2010 to allow more time for appeals to be lodged. The full story is here: http://www.theglobeandmail.com/globe-investor/personal-finance/ottawa-acts-on-tfsa-confusion/article1618254/