Thousands of taxpayers continue to run afoul of TFSA withdrawal rule

A tricky rule keeps tripping up thousands of Canadians who make withdrawals from their tax-free savings accounts, and replace the money too early.

OTTAWA — A tricky rule keeps tripping up thousands of Canadians who make withdrawals from their tax-free savings accounts, and replace the money too early.

Some 54,700 taxpayers got warning packages from the Canada Revenue Agency earlier this year about the problem affecting the 2013 taxation year, and were told they face a penalty.

The number has been dropping steadily from a peak of 103,000 in 2010, but still represents a persistent misunderstanding of TFSA rules even as the agency and financial institutions step up education measures.

The regulations say that account holders can put back the amounts they withdraw from a TFSA only in a later calendar year. Doing so in the same calendar year exposes them to a tax hit for overcontributions, even though they’re only replacing the withdrawn funds.

By the end of 2013, some 10.7 million Canadians had opened a TFSA, a savings vehicle introduced by the Conservative government in 2009 that allows money to grow inside tax-free with no income-tax hit on withdrawal.

The popular savings tool cost the federal treasury some $410 million in forgone taxes in 2013, or more than a billion dollars over its first five years.

Some taxpayers are apparently slow to absorb the finicky withdrawal rule: this year 11,260 of them got the same warning package from the Canada Revenue Agency last year as well, figures provided by CRA show.

As of the end of last month, the agency had waived penalties for more than 17,000 Canadians who broke the rule in 2012. The average penalty waived was $516, or a total of almost $9 million.

And for the 2013 taxation year, more than 20,000 Canadians have already paid their penalties.

Taxpayers who received a TFSA warning package in the mail this summer were given 60 days to respond. Those who don’t respond get a notice of assessment, imposing a penalty.

A spokesman for the agency said the onus is on Canada’s banks and other financial institutions to make sure their customers know the rules.

“As with any financial or investment product, financial institutions have a responsibility to inform their clients of the details and restrictions relating to TFSAs,” said Philippe Brideau.

“The CRA continues to work very closely with the financial institutions to ensure that CRA information related to TFSA is well understood and known by the Canadian financial sector.”

Brideau noted that fewer than half a per cent of TFSA holders ran afoul of the rules in 2013.

The current maximum annual contribution to a tax-free savings account is $5,500, though Prime Minister Stephen Harper has promised to double the maximum once the federal books are balanced, expected next year in advance of the scheduled 2015 federal election.

A special analysis in 2012 by the Finance Department found that the savings vehicle is more popular among higher income and older Canadians.

Just Posted

Red Deerians shop for exotic plants at spring plant sale

Exotic plants are popular at the Red Deer & District Garden Club’s… Continue reading

Central Albertans come together to end MS

Red Deer’s Bre Fitzpatrick has MS. The medication the 34-year-old is on… Continue reading

Wildfire crews watching for dangerous wind shift in High Level, Alta.

HIGH LEVEL, Alta. — Crews battling an enormous wildfire just outside the… Continue reading

New poll suggests one-third don’t want politicians to wear religious symbols

OTTAWA — While most Canadians firmly back the Charter of Rights and… Continue reading

Red Deer stamp-collecting event a hit, local club expected to start in fall

Postage stamp-loving Red Deerians can expect to have a place to gather… Continue reading

WATCH: Cars, airplanes, motorcyles on display at Red Deer Airport

Cars, motorcycle and airplane enthusiasts united at the Red Deer Airport Sunday… Continue reading

Cast your votes for the Best of Red Deer

Nominations for the Best of Red Deer Readers’ Choice Awards are officially… Continue reading

Bid to get D-Day beaches added to list of UN World Heritage Sites in limbo

OTTAWA — The beaches of Normandy, where the Allies stormed ashore to… Continue reading

Could this 20-year-old Montreal polyglot be Canada’s most multilingual student?

MONTREAL — Georges Awaad answers the phone with a polite “Hello,” but… Continue reading

Feds lay out proposed new rules for voice, video recorders in locomotives

OTTAWA — The federal Liberals have laid out their proposal for rules… Continue reading

Trump’s trophy day of sumo, golf and cheeseburgers in Japan

TOKYO — President Donald Trump presented a special U.S.-made trophy to the… Continue reading

Two dead, one seriously injured, following explosion in Calgary home’s garage

CALGARY — Police in Calgary say they believe a house fire where… Continue reading

Raptors fans spill onto the streets ahead of potentially historic game

Cars honked, exhilarated fans chanted and long lines formed outside bars and… Continue reading

Most Read