Update on June 27, 2010: The Government has decided to provide relief to taxpayers whose net TFSA contributions never exceeded $5,000 in 2009. The deadline for responding to the TFSA return letter from the CRA is August 3, 2010. You are asked to respond to the CRA letter by providing additional information or explanations that you may have in respect of your over-contributions. Details here.
If you are one of the reportedly more than 70,000 or so tax payers who has been penalized by the CRA for excess TFSA contributions and the error arose as a consequence of a reasonable error and are looking for relief, I urge you to read Rob Carrick’s column in the Globe and Mail today (See Confusion over TFSA rules leads to costly penalties for some investors):
Accidentally contributed more than $5,000 to a TFSA? It may still be possible to avoid penalties for over-contributions. Paul Hickey, partner at KPMG’s national tax centre, suggested using CRA’s tax fairness provisions by submitting a Request For Taxpayer Relief form.
“Interestingly the TFSA provisions contain a special rule which allows the CRA to waive or cancel all or part of the penalty if you can establish “to the satisfaction of the Minister that the liability arose as a consequence of a reasonable error,” and that the individual acts without delay to fix the problem,” Mr. Hickey said in an e-mail.
Here are the specific provisions in the TFSA legislation that would allow taxpayers to request a waiver of tax payable:
Tax payable on excess TFSA amount
If, at any time in a calendar month, an individual has an excess TFSA amount, the individual shall, in respect of that month, pay a tax under this Part equal to 1% of the highest such amount in that month.