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  1. I accidentally tried to transfer money into my TFSA with ING over the $5000 limit. It displayed some sort of error message saying that I had over contributed. It was nice for them to have caught that since it was my mistake in selecting the wrong account.

    • Canadian Capitalist

      @ING Client: Yes, I have a TFSA account with ING as well and it displays a warning message when contributing to the TFSA account. With all the brouhaha that the TFSA excess amount penalties have created, you’d think that financial institutions would rush to warn clients of being careful when contributing to the TFSA accounts but clearly some still can’t be bothered. A pity, really.

  2. Does anyone know why withdrawals don’t just get added to your contribution room immediately? Is this a hangover from RRSPs, or is there some justifiable reason?

    • Canadian Capitalist

      @Patrick: Here’s my guess on why withdrawals don’t get added to the contribution room in the same year. It’s an administrative nightmare to keep track of. Per current rules, all a financial institution has to do is report contributions and withdrawals for a tax payer once every year. To keep track of a balance, instead of contribution room, financial institutions have to report it immediately and CRA should keep a running tally because a taxpayer could withdraw from one account and contribute to another. It will all add up to a mountain of extra paperwork. Calculating excess TFSA amounts will depend on the sequence of contributions and withdrawals among all institutions, not just total contributions and total withdrawals from each institution separately.

      Anyway, that’s my guess. I’ve been meaning to write a post on this and would like comments.

  3. @Canadian Capitalist: Excellent point. Though, I suppose it could all be calculated after-the-fact from contributions and deductions reported at the end of the year.

  4. Pingback: Budget, Famous Bankruptcies, TFSA Penalties and More | Million Dollar Journey

  5. @Canadian Capitalist: I’m not sure if that’s the reason for limiting the re-contribution to the next year. CRA already, for the purposes of tax penalty calculation, tracks exactly how much aggregate overcontribution you have at any given time across all TFSA accounts you have. See form RC243-SCH-A. My guess is that they do it intentionally to limit the number of transactions so that people really think of it as a savings method.

    What I find amusing is that I’m one of those 70000 Canadians who was assessed a penalty ($450!!) because my bank misreported a transfer from a savings account to brokerage account as a withdrawal and a contribution (on the same day!).

    What I find amusing is that according to form RC243-SCH-A, if you withdraw an overcontribution, the day after the overcontribution, the withdrawal decreases the overcontribution, and you would only be charged a penalty for the overcontribution for 1 month, or 1% of the overcontribution.

    However, if you withdraw and contribute on the same day (which is what CRA believes I did), then it is debatable which transaction occurred first (maybe the overcontribution was fresh money). Form RC243-SCH-A doesn’t say which to place first, but if the withdrawal happens second, then it reduces the overcontribution. If it happens first, then you have an overcontribution for every month for the rest of the year. Care to guess which of the two methods CRA picks by default?