TFSA Overcontribution Reasonable Error

Hi all,

Did any of you successfully applied for waiver of TFSA penalties due to reasonable error? If so, can you share the circumstances? It appears as though there are very limited situations in which these would be granted…

Thanks in advance

I’ve been fortunate not to face this exact situation, but I’ve dealt with a similar one involving RRSP overcontributions. I assume both scenarios can be resolved. In my client’s case, we prepared a cover letter to the CRA, explaining the reasons behind the overcontributions. They had recently returned to Canada and didn’t have access to their CRA MyAccount. We provided detailed steps the client took, including reaching out to our firm. It’s worth noting that in my client’s case, they realized the mistake within a few months. If the overcontribution extends for a year or more, the CRA would most likely deny penalty forgiveness.

While I was open to this case due to its special circumstances, the extensive time spent on documentation and responding to inquiries made it not financially viable, given the constant stress it caused.

People should exercise common sense when contributing/withdrawing their TFSAs, RRSPs, and FHSAs. They should plan accordingly and know their contribution limits before. If I ever come across a case where there’s been an overcontribution and the client had access to their CRA MyAccount, I would likely decline it, as it will most likely be a waste of time.

I have done a few of these over the years but since CRA started sending the “education letters” re TFSA overcontributions, it’s more difficult to justify the waiver of penalty and interest if the TP doesn’t address the situation shortly after receiving the letter. I got a young client (20 years old at the time) out of the penalty even after CRA issued the education letter. This young fellow had been authorized, by CRA, for the DTC for a learning disability. I sent them the T2201 that they reviewed and approved that said he had a comprehension problem. It took a second review by CRA but they cancelled the penalties and interest.

I have a situation that just arose this week. A repatriated Cdn resident (2022) made a $5K contribution in 2009 shortly before becoming a non-resident and a $10K contribution to her TFSA in 2011, about two years after becoming a non-resident. She never filed a final T1 when she became a non-resident and CRA never sent her a reminder/demand to file a return. She received TFSA returns from 2009 to 2022 for her overcontribution. The penalties and interest are over $70K! I can get her out of the penalty/interest on the $5K because she was a Cdn resident at that time. I advised her to cash out the TFSA as soon as possible and provide me with the documentation. I am also gathering information about why she made a contribution after becoming a non-resident. This will be interesting. Every one of these is a whole new story so there’s no template for applying for a waiver.

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Thanks for your responses Kevin & GuyWhoPlaysGolf

You’ve highlighted some intriguing situations, @kevin. The one concerning the DTC is particularly thought-provoking. It’s not something I’d really considered before.

I also distinctly remember a situation when the CRA sent my mother a TFSA overcontribution education letter. Her financial advisor at the bank mistakenly contributed over $10k beyond her room limit, despite us providing them with documents clearly indicating her limit. It turned into quite a mess. As a sort of “goodwill” gesture for the trouble, they offered us a $25 Shoppers Drug Mart gift card. That incident taught us an important lesson – the people at the banks refer to themselves as “advisors,” not “advisers.” Advisors are essentially salespeople, whereas advisers are regulated and have specific designations.

TFSA penalties, I have not had any clients who had a Good reason for over contributing. Therefore, I have not applied to have penalties removed.

All over contributors were due to not paying attention to the limits, not reviewing statements of what was invested and when, in general they assume the advisor is going to do what is best for them and don’t question it

Advisors/advisers … good point.

When clients complain to me about their Advisors, I do suggest that they are dealing with a salesperson who is doing their best to make a living, retain you as a client and taking an educated guess at what the future holds.

None of us can predict the future… everything has risks.

Self education is important and you cannot allow others to make all the decisions for you. It is important to follow-up with our advisors/advisers to see if they have not made an honest mistake.

Rachel Parlee