What to do if you receive a TFSA Notice of Over-Contribution
If you file an annual income tax return, you are already receiving a notice of assessment from the CRA. This usually shows up in your mail a few weeks after filing, and contains information such as any balance or refund owing, your GST/HST rebate, and your RRSP deduction limits. If you have a TFSA you will also see your contributions and withdrawals made during the year, as well as your updated unused contribution room.
Getting a notice of over-contribution
If the CRA thinks you over-contributed to your TFSA, you will receive a letter in the mail. This will outline the alleged transgression and a proposed TFSA return (stating the amount owed) It will also include a transaction summary of your TFSA for the year, and a detailed breakdown of how you (supposedly) over-contributed. Receiving such a letter does not necessarily mean you over-contributed…the CRA is working with possibly inaccurate information, and the proposed TFSA return is not (yet) a formal assessment.
If you have received such a letter from the CRA, you have three options:
- If you agree with what they say then you can simply sign and mail back the relevant forms as well as your payment. You will be assessed an over-contribution penalty tax that is equal to one percent per month for each month you have exceeded your TFSA limit.
- The CRA’s letter is based on information sent to them from your TFSA issuer (your bank or brokerage firm). It’s possible they received inaccurate transaction summaries. If you believe this is what happened, contact your bank or brokerage firm and ask them to send the CRA new transaction summaries. Be sure to let the CRA know about the incoming amended summaries by calling them at 1-800-959-8281.
- If you disagree with the CRA’s informal assessment, or want them to review your situation, then you must send a letter to the CRA outlining your disagreement and include any supporting documentation (eg. marriage license, divorce papers, immigration status, etc). You send the letter to:
Canada Revenue Agency
TFSA Processing Unit
Post Office Box 9768 Station T
Ottawa ON K1G 3X9
What happens next?
The CRA will review your situation and send you a letter explaining their decision. As well they will send out a new notice of re-assessment based on their decision. It may or may not go your way!
If you still disagree with the notice of re-assessment, your final recourse is to make a formal objection by sending in the Form T400A (“Objection – Income Tax Act”) within 90 days (3 months) of the date on the notice of re-assessment. If your over-contributions were due to “a consequence of a reasonable error” and the overcontribution is withdrawn “without delay”, you might be fortunate enough to have CRA cancel the outstanding tax amount.
If CRA refuses to cancel the tax, you can escalate the matter by taking it to federal court where a judge will determine whether CRA’s decision is reasonable.