Questrade the CRA and the Double TFSA 2011 Contribution Confusion

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.

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Why Charging for Mailing Paper Bank Statements May Cost the Banks the Big Bucks

CIBC recently introduced a fee for receiving paper bank statements. A close relative had a US Dollar account with CIBC that used to issue quarterly paper statements. There is no passbook option for this account. This US Dollar account pays a low rate of interest. And that’s partly why it is now going to cost CIBC a lot more money to do the same business than it cost to print and mail one statement every 3 months.

My relative phoned CIBC to discuss this new fee of $2/statement. She does not have a computer or a cell phone, nor does she
intend to get either. In the past, she reviewed her quarterly statement to make sure the transactions were correct. She also made a note of the interest paid each month for when she filed her tax returns.

How Can One Be Held Responsible for Transactions that May have Been Booked in Error by CIBC?

When this customer phoned CIBC to cancel paper statements because of the new fee, the customer was told she was responsible for ensuring she reported any errors in the account transactions within 30 days of the end of the month. She would be deemed to have received the e-statement at the end of each month.

“Customers must review their account transactions through CIBC Online or Mobile Banking, CIBC Telephone Banking or CIBC bank machines at least once every 30 days and examine all entries and balances at that time. If there are any errors, omissions or irregularities, customers must notify CIBC in writing within 60 days after the date on which the entry was, or should have been, posted to the account.” https://www.cibc.com/ca/chequing-savings/us-personal-acct.html

How, she asked, would she know what transactions had been booked if she couldn’t see the statement? There is no passbook option for the account. CIBC could erroneously book a transaction against the account.

The support person said she could telephone CIBC to check the account balance. (She could also perhaps check the actual transaction history by telephone, that was not clear.)
The customer said “So you mean I’m going to have to now telephone every month to check on my account instead of reading a paper bill once every three months. How is this improving my service?”

The support person had no direct answer. Instead, the support person pointed out that both Rogers and Telus are already using e-statements.

The customer said that comparison has no value. Those are cell phone companies not banks. And the customer does not have a cell phone.

How Can One Check One’s Taxable Earnings without a Statement from CIBC?

Next, the customer explained she had been using the statements to report her interest earnings for income tax. The customer support person said a T5 would be issued for interest over $50. The customer countered that while that is true, the interest on this account would never be high enough to result in a T5.

The customer support person then ALMOST said but you don’t have to report the interest on your taxes. She didn’t quite say it, though it was implied.

The customer explained she always reports all of her interest income and has no intention of breaking the law now. The customer support person then agreed that she could check her interest earnings by telephone each month.

The Cost of One Quarterly Mailed Statement from CIBC vs 12 Telephone Calls to Their 1-888 Number

As a result of this change to a fee for paper statements, this customer has cancelled her paper statements. Instead, she is planning to telephone each month to check her balance, in case there are any unexpected transactions, and to determine the interest paid on the account.

So CIBC is going to have to pay a customer service representative to answer a phone call each month to check the account balance and the transaction history.

I wonder whether the $1 they save on mailing a paper statement will be enough to pay for the time their CSR will be wasting? Not to mention the increased customer dissatisfaction when other banking customers can’t get through to a CSR because the phone line is clogged up with calls checking on transaction balances.

Ridiculous Fees and Ridiculous Demands May Cost CIBC Customers and Free Money

My relative also warned the CIBC customer support person that she may just close the account altogether.

Since CIBC was paying a very low interest rate on the money in that type of account, CIBC will effectively be robbing themselves of using that money for free. Multiply that effect by a few thousand customers and that could be significantly more than the cost of mailing out a few statements.

In conclusion, I think CIBC didn’t really look at all the costs and benefits of these paper statements. Cancelling the paper statements could result in increased call centre volume, increased call centre hold times, losing customers and accounts, and losing access to money at well below overnight posted borrowing rates. It will all depend on how much customers are willing to push back at the banks that are charging their customers money to hold their own money. (Some of us are old enough to remember when banks paid you money to hold your money. And sometimes even gave out toasters with new accounts!)

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Are you tired of banks charging you for the privilege of telling you what they have done with YOUR money? Do you remember the days when banks paid YOU to keep your money in the bank? Please share your experiences with a comment.