Tag Archives: taxes

Questrade the CRA and the Double TFSA 2011 Contribution Confusion

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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

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

The Dubious Joys of Taxes

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I have some articles on my site about RRSPs but there is more to taxes than deferring them. You can also reduce taxes. The article Optimize your Donations to Charity: Take Advantage of Taxes explains, amongst other things, how you can dodge paying capital gains tax through the judicious use of donations.

For those just starting to complete their tax returns I’d like to remind you that there are two  (2!) free programs available to file your taxes online if you make over $35,000. The first program has been offered in previous years as well. It’s by Bhok It Consulting and is called StudioTax. There’s also a new choice this year: GenuTax Standard. We don’t have all of our T forms yet so I haven’t had a chance to try either yet. I’ll be keeping readers “posted” though.

Here’s a roundup of some other tax-related reading I found, er, not too taxing?

The Blunt Bean Counter wrote why the CRA will likely audit your car expenses and what you’d better have ready when they come calling in The Taxation of Automobiles.

Boomer at Boomer and Echo wrote: What If Your Tax Return Is Reassessed?  which includes a personal experience with challenging the CRA on its interpretation of a taxable benefit. Did she win? Read and find out.

Evelyn Jacks wrote what your doctor will need to state if you are claiming the Family Caregiver Amount in her article New Tax Return Features New Tax Credits  If your doctor is as hard to see as ours, you may want to book that appointment now!

And going Way Back, BigCajunMan wrote of the amazingly high tax breaks he could finagle by so doing that left him wondering: Should I divorce my wife? For those who are worried, he celebrated his Silver wedding anniversary in 2012, so I guess he chose true love over tax credits.

Sara at Timeless Finance wrote: “My Whopping Tax Refund for 2013” which includes a personal tale of how an incompetent company’s tax deduction mistake has actually improved her life.  Call it kismet!

Michael James on Money shares his explanation for how market value assessment property taxes work and why Your Property Taxes May Not be Going Up as Much as You Think.

Clark at Million Dollar Journey wrote about how you can help give back to your community by working as a volunteer completing tax returns for those who cannot manage them. The details in the article Community Volunteer Income Tax Program have inspired at least one new volunteer and are well worth reading.

My Own Advisor updated the changes to payroll taxes like CPP and EI for 2013 in With a New Year Comes New Hits to Your Wallet. For those considering a move to self-employment, the required CPP payments for the self-employed may make you choke a bit.

And lastly, CBC News keeps us in the know with their article Key Dates in the 2013 Tax Calendar, and shares the profiles of 10 Notorious Tax Dodgers. Did you make this list? Ah well, there’s always next year.

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Do you have a favourite tax-related article that I missed mentioning? Please share your recommendations with a comment.