TFSA: 70,000 taxpayers over-contributed

By David Pye, Clearfacts, June 6, 2010

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It seems like the perfect storm: a combination of federal government vagueness, institutional laziness and consumer confusion.

The aftermath? As many as 70,000 taxpayers  with potential tax bills for over-contributing to their Tax-Free Savings Account (TFSA).
New government programs will inevitably have some glitches to be worked out. But, since the introduction of the TFSA program in the 2008 federal budget, nobody seemed to notice the potential pitfalls of the fine print details. That is, until now.
According to a Globe and Mail article, as many as 70,000 Canadians have received notices from the Canada Revenue Agency (CRA) informing them that they may be on the hook for hundreds of dollars in tax penalties.
The controversy surrounds a TFSA clause allowing for the tax-free withdrawal of contributions, as long as the amount is eventually repaid up to the maximum fund cap of $5,000 per year.
As it turns out, the TFSA rules were designed in such a way that repayment cannot be made until the following calendar year, or those repayments will be calculated as additional contributions.
In other words, within a calendar year, what goes in is cumulative, but what comes out is not deducted from the $5,000 cap.

For more information on the rules governing TFSAs.

Read this article at :
http://www.clearfacts.ca/budget/budget_planning/tfsa_70000_taxpayers_over-contributed

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