Tracking Your TFSA Contribution Room Can Save You From Harsh Fines

Before you make a new contribution to your TFSA you should make sure you have contribution room available to fill. There are 2 ways you can check on what the government thinks your TFSA contribution room is. Perhaps the fastest is to use the Telephone Information System, TIPS. You can also check it using the CRA’s Quick Access system. The best way, though is to track your TFSA contribution room yourself.

What To Be Cautious About When Checking Your TFSA Contribution Room

There is a problem with relying on the government to tell you how much TFSA contribution room you have. The problem is that their information may be out of date. Banks and financial institutions are not required to provide the government with the information about your contribution quickly. In fact, they may not tell the government for months that you put money into your TFSA to buy an investment or make a deposit.

They may also accidentally provide the government with incorrect information. This happened when one discount brokerage accidentally submitted contribution information to the CRA twice, making it seem as if its customers had contributed twice as much to their TFSAs as they actually had.

Keep Track of Your TFSA Contribution Room Yourself

The best way to know your contribution limit is to keep track of your TFSA or TFSAs yourself. Get a notebook or open a spreadsheet file on your computer. Update it each time you make a contribution or a withdrawal from your TFSA.

Keep a running total of how much room (if any) you have left, and how much room you will have on January 1 of the next year (when you can replace withdrawn contributions and when you will get your new annual amount of room.) It’s work but it’s worthwhile work.

Here’s an example of what a spreadsheet might look like:

Date Year New Contribution Room Contribution Room Because of Withdrawals in Previous Year/s Total Contribution Room Remaining Contribution Withdrawal Total Withdrawals So Far This Year
January 1 2014 $5500 $2000 $7500 0
January 1 2014 $5500 $2000 0
March 7 2014 $3800 $1700 0
June 13 2014 $3573 $227 0
Sept 6 2014 $3573 $5123 $5123
November 14 2014 0 $3573 *** $5123
December 31 2014 0 $5123
January 1 2015 $5500 $5123 $10623 0

*** NOTE: You this is the last contribution you can make in 2014. You cannot re-contribute the $5123 until January 1, 2015.

Invest the time in tracking your TFSA limit. It won’t take long but it could save you some serious dollars if you otherwise over-contribute.

What Happens If I Over-Contribute to my TFSA?

The government knew that creating TFSAs was going to create more headaches as people tried to abuse the system for undeserved profits. By 2010 they had set up some pretty strict controls on TFSAs.

If you over-contribute to a TFSA, you will pay a penalty fine of 1% of the over contribution per MONTH every month until the over-contribution is removed.

So, for example, if you over-contribute by $2 000, each month they will charge you a penalty of $20 for each whole or part of a month that the money stays in the TFSA. That’s $240 for the year, or $12% of the money that was over-contributed.

Some people didn’t find this enough of a deterrent. So the CRA also has the right to charge a fine that is equal to the entire amount of income and capital gains earned by the over-contribution.

That’s right. If you invested that $2 000 in a 3% per year savings account, the entire interest earned by the $2 000 would be forfeit and have to be paid to the CRA.

If you invested the $2 000 in shares of a company that tripled in value, every single cent of capital gain, whether you sold the shares or not, would be forfeit and payable to the CRA.

Over-contributing for profit is pointless. Take the money out and invest it in a regular non-registered account. Pay the taxes. You’ll make more money than by trying to game the government.

Shouldn’t My Bank Have to Tell Me I’m Over-Contributing to my TFSA and Stop Me?

Unfortunately, no.

You can have as many TFSAs as you want. So a bank or financial institution does not have any way to know whether you have maxed out your TFSA room or not.

Many institutions will flash a brief message on screen reminding you that it is your personal responsibility to ensure you have contribution room. That’s all they will do.

You won’t be able to sue your bank or brokerage if you over-contribute and get fined.

What Should I Do If I Accidentally Over-Contributed to my TFSA?

Accidents can happen. If you over-contribute to your TFSA, remove the over-contribution as soon as possible. Immediately write to the CRA and explain what happened.

Tell

  • when the money went in
  • when the money was taken out
  • how much money was over-contributed
  • why it happened

Ask for forgiveness. If this is your first over-contribution they may accept your explanation and waive the normal penalties.

Note: If you wait till the last day of the month or the second last before removing your over-contribution, you are weakening your argument that this was an honest mistake. “Mistaken” people do not try to get every penny of profit out of their mistakes: conniving fraudsters do.

Related Reading

Join In
Have you ever accidentally over-contributed to your TFSA? Were you able to get the mistake forgiven or did you get zinged with a huge penalty? Please share your experiences with a comment.

How to Get StudioTax 2013 Software to Do your Canadian Income Taxes for Free

If you’re cheap spending-averse like me, you may have been doing your taxes by hand for years. Now that the government is pushing us all to NETFILE our forms, I’ve finally caved in and started using a program to submit my return to the CRA. (I still calculate it by hand, though, to stay in practice.) When I went looking for a free way to NETFILE, I found StudioTax. It’s approved for NETFILEing and the only cost is a voluntary donation to the programmer. Since I support small businesses, I make the donation. Here’s how you can get the free StudioTax 2013 software for Windows to calculate and file your own income taxes.

StudioTax is certified by both the CRA and Revenue Quebec for NETFILE. You can also print returns to mail in.

How to Use StudioTax 2013 to NETFILE Your Taxes by April 30, 2014: Part 1: Get the Program

Future articles will talk about using the software to do the math and how to NETFILE once you’re sure your return is accurate.

StudioTax 2013 isn’t for everyone. Here are some of its limits as listed on the website:

  • It needs a Microsoft Windows operating system to run.
  • It can’t handle Form T1273 AgriStability  AgriInvest Programs STATEMENT A – Harmonized CAIS Program Information and Statement of Farming Activities for Individuals. (Neither can I.)

How to Download StudioTax 2013

  1. Go to http://www.studiotax.com/
  2. As desired, click on English or French. Read the details.
  3. Click on the Download link.
  4. If you want to save the program in a specific folder on your hard drive, make the folder now.
    • If you download the file as a ZIP file you will have to unzip it.
    • If you download the file as an EXE file you will not need to unzip it.

    To start the download, click on the EXE or ZIP link in the Latest 2013 row.

  5. If you click on EXE:
    1. Click on the Save File button.
    2. Select the directory where you want the file saved and click the Save button.
  6. If you click on ZIP:
    1. Click to select the dot beside Save File.
    2. Click OK.
    3. Select the directory where you want the file saved and click the Save button.
    4. Unzip the file.
      For example: Navigate to the StudioTax2013Install.zip file.
      From the File menu, select Extract All.

To Install StudioTax 2013 Software on your PC

Complete instructions are given on the StudioTax website at:  http://studiotax.com/en/?page=2

  1. Go to the folder where you saved the EXE file.
  2. Double click on the EXE file named StudioTax2013Install.exe.
  3. To run the file, click on the Run button.
  4. Select a language from the drop-down list and click the OK button.
  5. The Welcome to StudioTax 2013 Setup wizard will start.
    Click Next.
  6. It will suggest storing the program in C:\Program Files\BHOK IT Consulting\StudioTax 2013\
    You can use the Browse button to move to a different folder if you want.
    When the folder is ok, click Next.
  7. Review the license agreement (it’s short!) and select the dot beside I accept the terms in the License Agreement or I do not accept the terms in the License Agreement.
    Click Next.
  8. Click Install. Wait.
  9. Click Finish.

The program is now installed in the folder you chose (or in the default folder on C:\ drive.)

An icon has been added to your Desktop called StudioTax 2013. It’s a dark red X in a Blue circle over a maple leaf.

To use the program, you double click on the StudioTax.exe in that folder or double click on the icon.

Please make a donation to Bhok It Software if you like the program so that they can keep offering it each year.

Related Reading

Coming soon, once I use the program:

  • Using StudioTax 2013 to Do Your Tax Forms
  • Sending a NETFILE Return Using StudioTax 2013

Join In
Is this your first year using StudioTax or your fifth? Have you ever tried another program? Please share your experiences with a comment.