Personal Finance

My TFSA balance is $200, and the CRA wants me to pay interest on $5700... wtf

  • Last Updated:
  • Jun 11th, 2012 4:21 pm
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[OP]
Deal Fanatic
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Jun 8, 2005
5624 posts
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Toronto

My TFSA balance is $200, and the CRA wants me to pay interest on $5700... wtf

Okay, I will admit I probably should have done more research on exactly how the TFSA worked when I opened it at the beginning of 2009, but here's the deal...

In 2009 I opened my TFSA with PCFinancial and treated it like a regular savings account. As a result of this, I frequently moved money in and out of the account (maybe once a month) and in total for 2009, I put $6740.39 into the account, but also withdrew $6556.00. My balance at the end of 2009 (and currently) is about $200. At any given time in 2009, the account balance never went above $4000. I was naive and thought the rule was that my balance couldn't be above $5000. Perhaps even more naive, I assumed PCFinancial would give me a notice or warning if I went over the limit.

Anyways, I just received a letter from the CRA that lists my net contributions ($6740.39) and my net withdrawals ($6556.00) and a few pages later, it says that the amount I owe, 1% of 5761.56, is $57.61

Can anyone explain to me how the hell they came up with this number, or if they made a mistake? I am absolutely perplexed as to how they got a number like $5700+ ... My net contribution was $6700, but they're not charging me 1% of $1700 which is how much I was over $5000 for the year... Also, I broke the $5000 limit at the end of August. So if they charged it per month, then it should be $1700*4 months = 1% of $6960.. even if it was 3 months, it's $5260, not 5761...

Also, As I understand the rules, you have to pay 1% on the highest excess TFSA amount in any given month, per month that you are in an excess contribution position... But that still doesn't seem right. Are they saying that if you put $6000 into your TFSA in January by accident, and take out the $1000 after it's in the account for 1 week, so at the end of January your balance is only $5000 but you contributed 6000, you still have to pay 1% of the $1000 you were over for each month of that year that you over contributed? i.e. you have to pay 1% of 12*$1000 = 0.1*$12000 = $1200 in penalties?!?!?!?!?!

I mean just look at me... they want me to pay $60 in taxes on an account that finished the year with a $200 balance, and only ever made $19.50 in interest. I'm paying anywhere from 30%-300% in taxes. Does that sound right?

:confused:

*edit*
Sorry for the misleading/confusing title
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:) it took me 45 minutes to make this signature :(
219 replies
Jr. Member
Nov 18, 2003
142 posts
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Ontario
I think they likely have it right. You can put money in and take money out but any money you take out can not be put back in until the next calendar year.

So if you put in $2500, take out $2500, put in $2500, and take out $2500 then you would not longer be able to put any money in again until the next year. The most you can deposit in total for the 1st year is $5000. So if you put in $1000 and took it out over and over then after 5 times of doing this you would start going over the limit and having to start paying a penalty on any deposits over $5000 for the calendar year.

If you buy stocks or something else with the money that is in there and make a profit then that increases your total amount in there for the year but the rule of not being able to put in more than $5000 in the first year still applies. If you made a $1000 profit on your stock you could take out $6000 for the year but still would not be able to deposit again until the next year.
Sr. Member
Jul 29, 2009
895 posts
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The penalty is 1% of your excess contributions per month. I don't know the dates / amounts of your contributions, so I don't know how accurate their number is .. but since they get the info directly from your financial institution, I doubt it's wrong.
Deal Addict
Jan 19, 2006
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Vancouver, BC
corrupt123 wrote:
Jun 7th, 2010 8:08 pm
Also, I broke the $5000 limit at the end of August. So if they charged it per month, then it should be $1700*4 months = 1% of $6960.. even if it was 3 months, it's $5260, not 5761...

... i.e. you have to pay 1% of 12*$1000 = 0.1*$12000 = $1200 in penalties?!?!?!?!?!
Firstly, that math is wrong; 1% is 0.01

Secondly, you probably hit the $5000 mark earlier because when you withdraw money from a TFSA, the extra contribution room you have is added back for next year. So if you've been constantly withdrawing and depositing, you may not have crossed the $5000 amount in the account, but have already crossed the allowed $5000 contribution.
Deal Addict
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Sep 26, 2007
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SC
It seems correct as your numbers and dates are not accurate.

1. It unlikely cra made a mistake

2. the penalty of an over contribution of $1700 over 4 months even if your balance was under $5000 is about $68.
Deal Addict
Jul 28, 2005
3237 posts
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corrupt123 wrote:
Jun 7th, 2010 8:08 pm
Can anyone explain to me how the hell they came up with this number, or if they made a mistake? I am absolutely perplexed as to how they got a number like $5700+ ... My net contribution was $6700, but they're not charging me 1% of $1700 which is how much I was over $5000 for the year... Also, I broke the $5000 limit at the end of August. So if they charged it per month, then it should be $1700*4 months = 1% of $6960.. even if it was 3 months, it's $5260, not 5761...
The way they come up with the number if to calculate the maximum amount you were over each month.

So if you started to be over in August, you were actually over for 5 months.

For example.


August:
Total contributions $5500
Monthly penalty: 500 * 0.01 = $5

Sept:
Total contributions $6000
Monthly penalty: 1000 * 0.01 = $10

Oct:
Total contributions $6200
Monthly penalty: 1200 * 0.01 = $12

Nov:
Total contributions $6200
Monthly penalty: 1200 * 0.01 = $12

Dec:
Total contributions $6700
Monthly penalty: 1700 * 0.01 = $17


So using this simple example, you penalty would be $56.


Are they saying that if you put $6000 into your TFSA in January by accident, and take out the $1000 after it's in the account for 1 week, so at the end of January your balance is only $5000 but you contributed 6000, you still have to pay 1% of the $1000 you were over for each month of that year that you over contributed? i.e. you have to pay 1% of 12*$1000 = 0.1*$12000 = $1200 in penalties?!?!?!?!?!
Besides the math mistake pointed out in a previous post, you would only pay a penalty for one month in this example.

After you withdraw the $1000 from the TFSA you are no longer in a penalty situation. So for February on, if you don't make any further deposits, there would be no further penalties. However in your case you kept on making deposits, so you probably never exited the penalty situation after you entered it.
[OP]
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Jun 8, 2005
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Toronto
Hey everyone, thanks for the replies.

I don't know if I was clear in my original post, but basically my contributions were like this:

For 2009, up until and including July 30th, I had deposited a total of $4740. In addition to this, I had made many withdrawals. So unless withdrawing money also counts towards your contribution, I had not exceeded the annual limit as of July 30th.

On August 31st, I deposited $2000. This brings my total contributions to $6800 or so (as I mentioned in my original post). This was the last contribution I made in 2009, and put me at $1700-1800 over the maximum amount. As I mentioned however, I was making regular withdrawals from the account (net balance never exceeded about $4000).

September 4 I withdrew $450
October 1 I withdrew $300
November 3 I withdrew $1020
November 12 I withdrew $736
November 30 I withdrew $500
December 24 I withdrew $500
December 31 I withdrew #300

That said, any idea how they came up with the 1% of $5700 figure?

Also, my mistake on 1% = 0.1 :lol:
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:) it took me 45 minutes to make this signature :(
Deal Expert
May 30, 2005
42285 posts
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Richmond Hill
corrupt123 wrote:
Jun 7th, 2010 10:20 pm
Hey everyone, thanks for the replies.

I don't know if I was clear in my original post, but basically my contributions were like this:

For 2009, up until and including July 30th, I had deposited a total of $4740. In addition to this, I had made many withdrawals. So unless withdrawing money also counts towards your contribution, I had not exceeded the annual limit as of July 30th.

On August 31st, I deposited $2000. This brings my total contributions to $6800 or so (as I mentioned in my original post). This was the last contribution I made in 2009, and put me at $1700-1800 over the maximum amount. As I mentioned however, I was making regular withdrawals from the account (net balance never exceeded about $4000).

September 4 I withdrew $450
October 1 I withdrew $300
November 3 I withdrew $1020
November 12 I withdrew $736
November 30 I withdrew $500
December 24 I withdrew $500
December 31 I withdrew #300

That said, any idea how they came up with the 1% of $5700 figure?

Also, my mistake on 1% = 0.1 :lol:
Just a guess, but $5700 might be the total of the exceeded amount at the end of each month.
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Deal Addict
Jul 28, 2005
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corrupt123 wrote:
Jun 7th, 2010 10:20 pm
On August 31st, I deposited $2000. This brings my total contributions to $6800 or so (as I mentioned in my original post). This was the last contribution I made in 2009, and put me at $1700-1800 over the maximum amount. As I mentioned however, I was making regular withdrawals from the account (net balance never exceeded about $4000).

September 4 I withdrew $450
October 1 I withdrew $300
November 3 I withdrew $1020
November 12 I withdrew $736
November 30 I withdrew $500
December 24 I withdrew $500
December 31 I withdrew #300
It's just basic math.

On August 31 you total deposit is $6740 and your penalty amount is $1740.
For Sept. the maximum amount you were over was again $1740.
For Oct. the maximum amount you were over was $1290. (1740 - 450)
For Nov. the maximum amount you were over was $990. (1290 - 300)
In Dec. you weren't over.

And the total of these four numbers is $5760.
Member
Apr 27, 2008
401 posts
34 upvotes
corrupt123 wrote:
Jun 7th, 2010 10:20 pm
Hey everyone, thanks for the replies.

I don't know if I was clear in my original post, but basically my contributions were like this:

For 2009, up until and including July 30th, I had deposited a total of $4740. In addition to this, I had made many withdrawals. So unless withdrawing money also counts towards your contribution, I had not exceeded the annual limit as of July 30th.

On August 31st, I deposited $2000. This brings my total contributions to $6800 or so (as I mentioned in my original post). This was the last contribution I made in 2009, and put me at $1700-1800 over the maximum amount. As I mentioned however, I was making regular withdrawals from the account (net balance never exceeded about $4000).

September 4 I withdrew $450
October 1 I withdrew $300
November 3 I withdrew $1020
November 12 I withdrew $736
November 30 I withdrew $500
December 24 I withdrew $500
December 31 I withdrew #300

That said, any idea how they came up with the 1% of $5700 figure?

Also, my mistake on 1% = 0.1 :lol:
August = 1,740
September = 1,740
October = 1,740 - 450 = 1,290
November = 1,290 - 300 = 990
December = 990 - 1,020 - 736 - 500 = 0
Total = 5,760

That seems about right.
Sr. Member
Jan 10, 2008
999 posts
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Toronto
TFSA is for long term saving like a retirement. Why would you take it in and out? As a result, you have lost track.

TFSA should not be used for cash-equivalent.. it is a great vehicle for equity! Can you imagine holding Apple stock in TFSA? No tax needs to be paid on all the money you can make? How about Citibank? How about penny stocks?! You get the idea.

It is a great way for people to make money from stocks, without paying a cent of income of tax! You can potentially make $10,000 tax free, by choosing the right stock for doubling. With our stock market up and down these days, it is quite possible to do that (or the opposite).

Don't waste it on cash savings or GIC... unless you cannot afford an investment in equities.
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Oct 9, 2005
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Not to be mean to the OP, but I'm actually glad that someone got into an TFSA overcontribution situation and posted it on RFD with details on the CRA calculations, so we can do the math and see just how the rules work (for now).

:o
Intricated
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Intricated wrote:
Jun 7th, 2010 10:44 pm
Not to be mean to the OP, but I'm actually glad that someone got into an TFSA overcontribution situation and posted it on RFD with details on the CRA calculations, so we can do the math and see just how the rules work (for now).
true... however i do believe any gains/interest earned on the over contributions are or will be subject to heavy taxes which would be needed for exact calculation :)
Deal Fanatic
Jan 27, 2005
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Richmond Hill
is there anything we can do about this??? The same thing happened to me!!

i opened an account on RBC and then moved it to questrade. they considered it as sold on rbc and rebought on questrade. I just got a bill for $450....

This is absolutely ridiculous...

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