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moneysense.ca, 20/06/10
Apply for waiver of TFSA over-contribution penalties
207.06
(1) If an individual would otherwise be liable to pay a tax under this Part because of section 207.02 or 207.03, the Minister may waive or cancel all or part of the liability if
(a) the individual establishes to the satisfaction of the Minister that the liability arose as a consequence of a reasonable error; and
(b) the individual acts without delay to cause one or more distributions to be made, under one or more TFSAs, the total amount of which is not less than the amount in respect of which the individual would otherwise be liable to pay the tax.
Also see Money Smarts Blog’s post on this topic.
How to apply
I should note here that I’m not a tax professional or accountant but here’s how I’d apply for a excess TFSA amount penalty waiver.
- Fill out the form Schedule A, Excess TFSA Amounts (Form RC243-Sch-A) and attach a cheque for the TFSA penalty amount. Mail it in to the nearest tax centre before June 30, 2010.
- File a Request for Taxpayer Relief (Form RC 4288). Ask for a waiver under 207.06 of the Income Tax Act. Show how the penalty arose as a result of a “reasonable error” AND the steps you have taken to rectify it (by removing the excess amounts). Mail it in to your nearest tax centre.
Rob Carrick writes in the Globe and Mail that the CRA may provide relief on a case-by-case basis.
James Daw in The Star (Don’t panic! Appeal penalty tax on tax-free savings) has a step-by-step process to apply for a waiver of TFSA excess amount penalties.
moneysense.ca, 20/06/10
Re-written for clarity:
(1) If an individual would otherwise be liable to pay a tax under this Part because of section 207.02 or 207.03, the Minister may waive or cancel all or part of the liability if
(a) the individual establishes to the satisfaction of the Minister that the liability arose as a consequence of the individual being a complete and utter moron who cannot understand basic english, and was wilfully blind in not spending a few minutes to go to the Canada Revenue Agency website and read the rules; and
How to send the request for the waiver?
1. T400A with a cheque
2. T400A without a cheque
3. A letter with the cheque
4. A letter without a check
And who we should send the request to?
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Ellen Roseman has an article in the Toronto Star (http://www.thestar.com/business/onyourside/article/823898–roseman-who-s-to-blame-for-costly-errors-in-tax-free-accounts) where she refers to an individual who contributed $21,000 to her TFSA thinking that the first $5,000 would be tax free. Clearly, people do not read the rules and put blind faith in others to have their best interests at heart.
Under (b) above, wouldn’t that mean the person has to withdraw the excess contribution as soon as they could? If I put $5,000 into a TFSA at ING in January, but was then offered a better rate at BMO on new TFSA’s (not transfers from other institutions), and I took my money out and put it in a BMO account in February, I’d have to witdraw it in March to apply for relief under (b). What’s more confusing? That or the TFSA rules? I’d go with the former.
Thanks for link!
Thanks… a very helpful link and info.
@KBE: Depending on the source, I’m hearing (1) or (3). If it were me, I’d call CRA and do what they suggest. If I were in this situation, I would (and I should note here that I’m not an accountant or tax professional):
(1) Send the cheque for the excess TFSA amount penalty.
(2) File a Request for Taxpayer relief (Form RC 4288). In it I’ll ask for a waiver under 207.06. I’ll point out why the penalty arose because of a reasonable error and document the steps I’ve taken to rectify it.
PS: I’d love to hear comments from tax experts.
Oh great , can i use this if i didn’t get my gross up right or the T5 or T5008 was wrong or some other CRA rule?
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This was obviously going to happen as the governments own website said in non-ambiguous terms that a TFSA account could be used the same was a regular savings account.
It was only the CCRA website that was clear on how the contribution amounts worked.