Personal Finance

TFSA Tax Return for Non-Residents

  • Last Updated:
  • Sep 15th, 2014 4:28 pm
[OP]
Newbie
Nov 14, 2006
4 posts

TFSA Tax Return for Non-Residents

Hi there,

In 2013 I was a non-resident of Canada, and unfortunately, I did not know about my ineligibility to contribute to my TFSA, and contributed $5K to the account in January.
Now, I have received a letter from CRA asking my to pay $1200 taxes on this ineligible contribution:

1. 1% tax on the entire contribution for each month: 12 * 5000 * 1% = $600
2. 1% tax on the highest excess tax for each month 12 * 5000 * 1% = $600

To me this is more like a penalty than a tax, because the whole interest I received for this $5K contribution throughout the year was under $100, taxes on which would be even less.

So my questions to the experts here:

1. Is the above calculation right? So I really have to pay $1200 taxes on 1 $5K contribution?
2. Is there any way for me to ask CRA to lower the amount? Would they even consider my plea?

Thanks.
7 replies
Deal Addict
Jan 7, 2014
2382 posts
448 upvotes
Winnipeg
calc is correct.
1st tax is for the contribution that you made while being non resident.
2 nd tax is because " In addition to the tax of 1% per month on the contributions made while a non-resident, you may also be subject to a separate tax of 1% per month if any of the same contributions create an excess amount in your TFSA"

source http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... n-eng.html

Good luck. try if you can claim that you didn't know....
[OP]
Newbie
Nov 14, 2006
4 posts
Thank you Asker123 for the reply.
I now wonder why taxes on $100 interest should be $1,200 (my $5,000 contribution was after-tax).
In the letter they sent me they don't mention this is a penalty, but the TFSA tax.
Jr. Member
Jul 1, 2010
116 posts
24 upvotes
New Westminster
It is the TFSA penalty that is $1200. Being you are / were a non-resident there would be no taxes on the $100.

Unfortunately it looks to be a pretty expensive lesson, however unless you opened this account on your own any banking institute should have confirmed whether you were a resident before opening the account.
Deal Addict
Jan 7, 2014
2382 posts
448 upvotes
Winnipeg
vahid wrote:
Sep 15th, 2014 12:18 pm
Thank you Asker123 for the reply.
I now wonder why taxes on $100 interest should be $1,200 (my $5,000 contribution was after-tax).
In the letter they sent me they don't mention this is a penalty, but the TFSA tax.
smokeyeye wrote:
Sep 15th, 2014 12:35 pm
It is the TFSA penalty that is $1200. Being you are / were a non-resident there would be no taxes on the $100.

Unfortunately it looks to be a pretty expensive lesson, however unless you opened this account on your own any banking institute should have confirmed whether you were a resident before opening the account.
Sorry for you OP but unfortunately this is not how the Tax Man works.
As fas as what I got from the CRA site ( The link that I sent you) . The TFSA tax is kind of penalty. It is up to you to consider it either a tax or a penalty but it is what it is. And yes it will not be calculated on the interest you earned ( $100) on your TFSA contribution. It is calculated on the entire contribution ( $5000 ) that you made while being the non-resident.
So first 600$ is for whatever amount you contributed while being non-resident.
And I think before you became non-resident , you didn't have any contribution room left hence as soon as you put $5000 in the TFSA it became over your contribution limit ( As you dont earn new contribution limit while you are non resident) hence another 600$ for the over contribution.
Try to talk to them .... I have no experience of talking to them.
[OP]
Newbie
Nov 14, 2006
4 posts
Thank you smokeyeye. It is indeed a very expensive lesson!
Thanks again Asker123. I'll try to communicate with them hoping they can reconsider. I definitely consider this as a penalty. It's way over what I can consider as a tax.
Sr. Member
User avatar
Apr 28, 2012
950 posts
323 upvotes
QC
Do you plan to ever become a canadian resident in the future ?
[OP]
Newbie
Nov 14, 2006
4 posts
Flitox wrote:
Sep 15th, 2014 1:30 pm
Do you plan to ever become a canadian resident in the future ?
I was a resident of Canada until 2012. I may go back to live in Canada in the future.

Top