Category Archives: Finances

Questrade the CRA and the Double TFSA 2011 Contribution Confusion

Posted on by

At the beginning of March 2013 a person posted to RedFlagDeals that they had received a letter from the Canada Revenue Agency advising them that they had contributed too much to their TFSA in 2011 and that they owed a large fine to the tax department. The investor knew they had not over contributed and started immediately checking into the problem. The error was made by Questrade. Apparently, due to a computer system change, some contributions were reported twice to the CRA. For example, investors who had contributed $5000 were reported as contributing $10000. This led to massive confusion.

This problem is also discussed on the Canadian Money Forum.

What is the Penalty for an Over Contribution to a Tax Free Savings Account?

When TFSAs were first introduced in 2009 all sorts of people immediately started trying to test the system to maximize their profits and minimize their taxes. The CRA set up a penalty for people who contributed too much to their TFSA. That penalty was set at 1% of the amount of extra money deposited in the TFSA per month! So if an investor contributed an extra $1000 they would owe $10 a month for each month the over contribution stayed in the TFSA. That means for a year, the penalty would be at least 12%, a cost much higher than the average benefit of investing.

This 1% is charged based on the highest over contribution during a month. So if you invested $5500 too much on, say, January 1, and removed it on January 3, you would still owe the $50 penalty for that month.

Isn’t It Worth Cheating and Contributing Too Much to a TFSA Even with the Penalty?

The investor will also owe taxes on any money earned by the over contribution. So there is no benefit to over contributing. You might as well invest it outside of your TFSA and pay the tax on any earnings. It’s cheaper than investing it in the TFSA, paying the 1% per month penalty and STILL paying the tax on any earnings.

You can check the Canada Revenue Agency website for examples of taxes and penalties payable on over contributing to a TFSA at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/txtn/xcssxmpl-eng.html#xmpl3  and the tax form for reporting tax owing as a penalty and as regular tax (Advantage section) on income http://www.cra-arc.gc.ca/E/pbg/tf/rc243/rc243-12e.pdf .

The Questrade Error Is Being Resolved with the Canada Revenue Agency

The Questrade error appears to have only affected contributions made between January 1 and February 4, 2011 based on information discussed by clients on RedFlagDeals.

What Should You Do If Questrade Reported Your Contribution Twice?

Questrade will be sending a corrected version of the information on contributions to the CRA.

Some investors, however, have decided to document the problem with the CRA TFSA Processing Unit. They have sent letters detailing what they contributed and when.

Where Should I Send My Explanatory Letter to the TFSA Processing Unit of the CRA?

The address reported on the CRA website is
TFSA Processing Unit
PO Box 9768 Station T
Ottawa ON K1G 3X9

However, the CRA has reported that it is unnecessary to call or write them at this time as Questrade has advised them of the problem and that it is sending a corrected information file as soon as possible.

You Can Check Your TFSA Contribution History on Line

It’s actually possible to check what the CRA thinks your TFSA contributions have been by using the Canada Revenue Agency website using My Account or Quick Access, or from TIPS the telephone information system. The Tax Information Phone System will only tell you the amount of unused TFSA contribution room as of January 1 of the current year.

UPDATE: Questrade Errors Fixed

According to posts on Redflagdeals.com, the correct information has been supplied to the CRA by Questrade and the corrections have now been implemented. As of April 24 2013 and onwards several forum users have reported their errors have been fixed and the CRA My Account feature now has the correct information for their contributions to TFSAs at Questrade.

Related Reading

Join In
Have you ever been assessed a penalty for over-contributing to your TFSA? Was it satisfactorily resolved? Please share your experiences with a comment.

How to Choose a Self-Directed TFSA Brokerage Account to Minimize Fees and Costs

Posted on by

Tax Free Savings Accounts, or TFSAs, first began in 2009 with a maximum annual contribution of $5000 for a Canadian who was 18 years of age or older. With that low an initial contribution level, they didn’t really offer much scope for self-directed investing. In each of 2010, 2011, and 2012, another $5000 in contribution room was added. Starting in 2013 $5500 per year in annual contribution room has been added. So a person who was 18 or older in 2009, and who has been a Canada resident every year from 2009 to the present, can now contribute or have contributed up to $31 000 $25,500 to a TFSA, not including any re-contribution of withdrawn funds. With $31 000 $25,500 plus earnings to manage, it makes sense for some investors to keep their TFSA in a self-directed brokerage account. When choosing a brokerage account, one aspect to consider is the fees and costs for holding and using the account. Here’s a review of which accounts have minimal or no fees and which accounts have high costs and commissions.

Please note there are actually two types of Tax Free Savings Accounts brokerage accounts, and those that can only hold a very limited number of investment choices which I call standard Bank TFSA accounts. For more information on the fees for basic bank TFSAs, please see the article How to Choose a Standard Bank Tax Free Savings Account, TFSA, with Minimal or No Fees.

Fees, Costs and Commissions for Self-Directed TFSA Brokerage Accounts

How to Choose a Self-Directed Tax Free Savings Account, TFSA, Brokerage Account with Minimal or No Fees

Some investors have a non-registered emergency savings account with 3-12 months income worth of cash and liquid assets, a topped up work pension plan, and a topped up RRSP. They often consider the TFSA as another long-term investing tool. These investors usually set up a self-directed TFSA brokerage account. They intend to buy stocks, bonds, ETFs and mutual funds from a wide variety of issuers. The self-directed account gives them the investing flexibility and diversity they demand.

BMO InvestorLine CIBC Investor’s Edge Qtrade Questrade
Set-up Fee  0  0  0  0
Transfer Fee  $135  $135  $125  $125 ($25 for partial)
Closing Fee  $135  $135  $75  0
Annual “Maintenance” Fee  0  0  0  0 if $5000 or if 1 trade per 3 months, or $19.95/3 months
Commissions to Buy Shares, ETFs $9.95 for everyone  if $50,000 assets
$29 if less		  $6.95 if $100,000 assets
$9.95 if $50,000 assets
$28.95 if less		  $9.95 if $50,000
$19 if less		  $4.95-$9.95
RBC Direct Investing Scotia iTrade TD Waterhouse
Direct Investing		 Virtual Brokers
Set-up Fee  0  0  0  0
Transfer Fee  $135  $150  $135 $125 plus tax
  $150 (partial $50)
Closing Fee  $135  0  $135 $125 plus tax  0
Annual “Maintenance” Fee  $25/3 months but 0 if $15,000 or various conditions are met  0 0
Update: July 2016:
$25/3 months but 0 if $15,000 or various conditions are met		  CAD TFSA $0
USD TFSA $50/year
Commissions to Buy Investments  $9.95 for everyone  if $50,000 assets
$28.95 if less		  $9.99 if $50,000 assets
$24.99 if less		  $9.99 for everyone  if $50,000 assets
$29 if less		  $0.99-9.99+6.49 per trade depending on assets

* InvestorLine has a minimum contribution to open any type of account of $5000. This appears to apply to TFSA accounts.

UPDATE: FEBRUARY 2014
In January and February of 2014, RBC Direct Investing, TD Waterhouse Direct Investing and BMO InvestorLine all removed the minimum balance requirement for accounts to qualify for $9.95 online trades. I expect CIBC Investor’s Edge and ScotiaBank iTrade will eventually reduce their requirements also but it hasn’t happened quite yet. Please check their websites for up-to-the-second details.

UPDATE: JULY 2016
CIBC Investor’s Edge offers $6.95 trades to all customers regardless of account size.

NOTES:
Generally you should expect to review your account statements online if you do not wish to pay any additional fees.

By Transfer Fee I mean the cost to transfer the TFSA to another financial institution. Generally transfers within an institution, for example from BMO InvestorLine to BMO, do not incur a fee.

Unfortunately fees and costs may be changed at almost any time. Before actually opening an account, contact the financial institution to confirm all costs. I’d hate to cause you a costly mistake if the brokerage raises its fees just after I issue this report!

Sources for the 2014 February Update

  • BMO InvestorLine: https://www.bmoinvestorline.com/public/pdf/schedule_en.pdf
  • CIBC Investor’s Edge: https://www.investorsedge.cibc.com/ie/benefits/fees-and-commission/fees.html
  • Qtrade: http://www.qtrade.ca/investor/en/aboutus/services/fees.jsp
  • Questrade: http://www.questrade.com/pricing/admin_fees
  • RBC Direct Investing: http://www.rbcdirectinvesting.com/commissions-fees-schedule.html
  • Scotia iTrade: http://www.scotiabank.com/itrade/en/0,,3694,00.html
  • TD Waterhouse Direct Investing: http://www.tdwaterhouse.ca/document/PDF/forms/521778.pdf
  • Virtual Brokers: https://www.virtualbrokers.com/contents.aspx?page_id=12

Related Reading

Join In
Do you have brokerage TFSA? Did any costs come as a surprise? Please share your experiences with a comment.