Recently we have had some clients approach us with letters received from the Canada Revenue Agency regarding their tax free savings accounts (TFSA) and a tax payable on over-contributions. The letter includes a Tax Free Savings Account Return and a transaction summary for 2009.
According to the CRA “If, at any time in a month, you have an excess TFSA amount, you are liable to a 1% tax on your highest excess TFSA amount in that month”. The 1% per-month tax will continue to apply for each month that the excess amount remains in the TFSA.
For example, if the limit is $5000 and you make the initial $5000 investment, plus an additional $600, then you will have to pay a 1% penalty on that $600 which in this case means $6/month.
You are allowed more than one TFSA account and are allowed to make withdrawals at anytime. However be aware that you will not be able to re-contribute any withdrawals until the new calendar year.
To find out about your maximum TFSA contribution limit for 2010, please refer to your latest notice of assessment received.
