Overcontributions
On June 1, 2010, the Canada Revenue Agency (CRA) mailed about 72,000 overcontribution letters to TFSA holders, representing about 1.5% of all 4.7 million TFSA-holders. The letters and calculations were based on information CRA received from financial institutions.
As a result of this mailing, financial institutions received many calls from confused clients. The TFSA holders did not realize that withdrawals from the TFSA increase the available contribution room not in the current calendar year, but the next calendar year.
For example, if you contributed $5,000 to a TFSA in January 2009, withdrew it all in July, and then later recontributed the $5,000 in November 2009, this would put you in an overcontribution position because the $5,000 July withdrawal does not create further room until 2010. This rule has caused much confusion.
The CRA recommended taxpayers still send in their payment penalty with the TFSA return and a letter explaining the situation by June 30, 2010. The CRA stated it would review this information on a case by case basis. If relief was granted, the CRA said they would return the payment. As of June 2010, the CRA has received about 10,000 responses to its letter from taxpayers.
TFSA holders can wait until they receive a Notice of Assessment, expected to be issued in August 2010, and then either file a formal Notice of Objection or apply for administrative relief by writing to the CRA. The risk of waiting, however, is that a late-filing penalty as well as interest may be charged by the CRA.
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