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so in the same calendar year exposes them to a tax hit for overcontributions, even though they’re only replacing the withdrawn funds.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.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Rocky Mountain House RCMP are investigating a fatal collision involving a pedestrian on Feb. 27. (File photo by Advocate staff)
Rocky Mountain House RCMP investigate fatal pedestrian collision

Collision occured west of Rocky on Highway 11A

Dentists are skills at injections and can help get more Albertans vaccinated, says the Alberta Dental Association and College. (Pxhere)
Use dentists’ injection skills to get more Albertans vaccinated sooner, says association

Dentists can safely give patient injections and want to support the immunization effort

A cross-country skier glides along the banks of the Ottawa River in Ottawa on Thursday, Feb. 25, 2021. Canadians across the country can look forward to a mild spring peppered with the odd winter flashback throughout the first part of the season, according to predictions from one prominent national forecaster. THE CANADIAN PRESS/Sean Kilpatrick
Mild spring with some wintry blasts predicted for most of Canada: Weather Network

March will be dramatically warmer through the prairies

Bharat Masrani, CEO, TD Bank Group speaks at the Economic Club of Canada in Toronto on Wednesday, November 1, 2017. THE CANADIAN PRESS/Nathan Denette
Five things to watch for in the Canadian business world in the coming week

Shares in metals and mining companies have rebounded sharply

A worker carrying a disinfectant sprayer walks past a WestJet Airlines Boeing 737-800 aircraft, after cleaning another plane at Vancouver International Airport, in Richmond, B.C., on Thursday, January 21, 2021. THE CANADIAN PRESS/Darryl Dyck
WestJet to lay off undisclosed number of pilots amid labour negotiations

Layoff notices to go out ahead of the expiration of a memorandum of agreement

Red Deer dogs Bunsen and Beaker helped save a missing pet recently. The two dogs have more than 80,000 followers on Twitter. (Contributed photo)
WATCH: Red Deer science dogs help save lost pet

Red Deer science-communicating dogs Bunsen and Beaker helped rescue a missing pet… Continue reading

A ” Justice for Jeff” T-shirt. (Photo submitted)
Rally to be held outside Red Deer courthouse for slain Ponoka man

Sentencing for accused charged with manslaughter with a firearm set for March 4

Team Canada skip Kerri Einarson makes a shot against Team Alberta as second Shannon Birchard, right, and lead Briane Meilleur sweep in the semi-final at the Scotties Tournament of Hearts in Calgary, Alta., Sunday, Feb. 28, 2021. THE CANADIAN PRESS/Jeff McIntosh
Kerri Einarson wins second straight Canadian women’s curling championship

Einarson and her teammates celebrated Sunday in the silence in an empty arena

Amy Poehler and Tina Fey hosted the Golden Globes on Feb. 28, 2021. (Photo by THE ASSOCIATED PRESS)
With loved ones and pets, Globes winners embrace cozier show

Nicole Kidman and musician-husband Keith Urban got glammed up to sit on their couch

The cast of “Schitt’s Creek” pose for a photo after winning the Award for Best Comedy Series at the Canadian Screen Awards in Toronto on March 31, 2019. THE CANADIAN PRESS/Chris Young
Schitt’s Creek nabs two Golden Globes for its final season

Catherine O’Hara named best television actress in a musical or comedy

Alberta Premier Jason Kenney speaks during a news conference in Edmonton on Feb. 24, 2020. It’s budget day in the province, and Kenney’s United Conservative government is promising more help in the fight against COVID, but more red ink on the bottom line. THE CANADIAN PRESS/Jason Franson
Alberta Premier slams vandalism after slur painted on MLA’s office window

EDMONTON — Alberta Premier Jason Kenney is condemning alleged vandalism at the… Continue reading

Canada Pension Plan Investment Board President and Chief Executive Officer Mark Machin waits to appear at the Standing Committee on Finance on Parliament Hill, in Ottawa on Tuesday, November 1, 2016. Executives who engage in so-called "vaccine tourism" show both an ethical disregard for those less fortunate and a surprising lack of business acumen, experts argue. THE CANADIAN PRESS/Adrian Wyld
Vaccine tourism is both unethical and bad for business, experts say

Executives who engage in so-called “vaccine tourism” show both an ethical disregard… Continue reading

Edmonton Oilers' Jesse Puljujarvi (13) and Toronto Maple Leafs' Justin Holl (3) battle in front as goalie Jack Campbell (36) makes the save during second period NHL action in Edmonton on Saturday, February 27, 2021.THE CANADIAN PRESS/Jason Franson
No Matthews, no problem: Minus NHL goal leader, Maple Leafs blank Oilers 4-0

Leafs 4 Oilers 0 EDMONTON — The Maple Leafs knew even with… Continue reading

Leader of the Government in the House of Commons Pablo Rodriguez rises during Question Period in the House of Commons on Parliament Hill in Ottawa, Friday, Nov. 20, 2020. THE CANADIAN PRESS/Justin Tang
Gummed-up bills in House of Commons: harbinger of a federal election?

OTTAWA — All federal party leaders maintain they don’t want an election… Continue reading

Most Read