Borrowing heavily from some recent literature on this subject, I though it may be useful at this time of the year to quickly revisit some of the rules surrounding tax free savings accounts (“TFSA”)
Contribution room for an individual’s TFSA is the total of the TFSA dollar amount for the year, unused room from prior years and withdrawals from the TFSA in the prior year. Note a withdrawal is a deduction from the contribution room. In addition, the unused room carried forward does not build for any year than an individual is a non-resident.
For individuals who have been building room since the start of the program in 2009, and have made no contributions, the total room available as of January 1, 2016 is $46,500: $5,500 for each of 2009 to 2012, $5,500 for 2013 and 2014, $10,000 for 2105 and $5,500 for 2016. Individuals can confirm their TFSA contribution online by accessing the Canada Revenue Agency’s (“CRA) My account online or using the myCRA mobile app.
For individuals who have contributed to their TFSA in excess of the available room, the excess mount is subject to a 1% penalty tax, pursuant to the regulations of the Income tax Act. Unlike RRSP’s, there is no grace amount.
To remedy the situation an individual may immediately withdraw the excess or wait for additional room to be available in the following year (noting that the penalty will continue to accrue until sufficient room is reached). If you are subject to an over contribution penalty, you are required to complete and submit the appropriate form by June 30 of the following year. Any taxes must be paid by that time.
Many have experienced issues with contribution room calculations. They are not always correct. In many of the cases, this is due to the timing of filings by TFSA administrators. You may want to check and re-check your calculations before making contributions.
I am aware of certain cases where the CRA has waived the taxes in respect of excess contributions. I would think you would need to demonstrate honest errors were made by you and/or your administrator.
Thanks for reading