TFSA return mail-out

The Canada Revenue Agency (CRA) sends out letters to Canadians who may have over contributed to their Tax-Free Savings Account (TFSA). Relief provisions may be available in certain instances. For more information, see TFSA returns and payment of taxes.

While certain cases may involve an overlap of issues or exceptions to the broadly identified categories, the following general information should be of assistance:

Direct transfers improperly reported – same institution

If the institution acknowledges that a withdrawal and subsequent contribution should have been processed as a direct transfer, the following steps should be taken:

Institution: As the withdrawal and contribution should not be reported to the CRA, amended records should be transmitted providing all information as per the original record but excluding the date and amount of the particular withdrawal and contribution.

Clients: They should be advised; preferably by letter; that an amended record will be submitted to the CRA. The clients should then respond to our proposed return package - including a copy of the form RC243 Tax-Free Savings Account (TFSA) Return, the bank letter and/or a letter of their own explaining the circumstances. Clients should also be advised to send a cheque for the amount owing since part of the tax may relate to issues other than the incorrectly reported direct transfer. If a client is adamant that they are unwilling to send a cheque, they should be advised that this will not represent a problem so long as the balance payable is ultimately reduced to zero but should the balance owing only be partly reduced, arrears interest may be applicable.

CRA: We will wait before proceeding with these cases in order to give reasonable time to ensure amended records are received and updated. If, subsequent to receipt and updating of amended records, the client's tax payable is reduced to zero, the taxes paid will simply be returned to them as well as letter to close the file.

Direct transfers improperly reported – different institutions

If two separate institutions are involved, it would be necessary for the transferring institution to submit an amended record showing all information as per the original but excluding the date and amount of the particular withdrawal. Likewise, it would be necessary for the receiving institution to submit an amended record showing all information as per the original but excluding the date and amount of the particular contribution. If only one or the other but not both institutions submit amended records, this may result in further problems with the account.

Institution: We will only accept electronic records in order to rectify this situation.

Clients: They should be advised as per item one above.

CRA: Action as per item 1.

Withdrawal and re-contribution intended as direct transfer

As noted previously, "transfer" issues involve essentially two primary subsets. The first involves one or more institution(s) which acknowledges they were aware of the client's request or intent that an amount be directly transferred between accounts but where this transaction was instead improperly reported as a withdrawal and subsequent re-contribution. Information provided under the two preceding headings address these situations. The third possibility involves cases where the individual did not specify or was otherwise unaware of the possibility (and benefits) of a direct transfer but who instead made an actual withdrawal and subsequent contribution to a different institution or a separate arm of an affiliated institution (e.g. investing arm vs. banking arm).

Institution: In these circumstances, no amended records should be prepared. The client should instead be advised as noted above and specifically directed to include a letter (along with a copy of the form RC243 Tax-Free Savings Account (TFSA) Return and cheque in the enclosed envelope) explaining the specific circumstances of their case. They should note the date and amount of the particular withdrawal and re-contribution which they intended simply as a (direct) transfer from one account to another - requesting relief of the related tax.

Clients: They should be directed accordingly.

CRA: Action as per item 1.

Proposed return – next steps

If an individual has received a TFSA proposed return package from the CRA, it does not automatically mean that they will owe tax. It may just mean that more information is needed.

The individual has the following options available to them:

1. If the individual agrees with the information in the attached TFSA return, they should sign, date, and include their social insurance number (SIN) on the return. They should send it to us along with their payment. If they prefer to make their payment electronically, they can go to My Payment—save time, pay online!. We will issue an assessment based on this return.

2. If the individual does not agree with the TFSA return and they would like us to review their situation, they can send us a letter to the address indicated below. They should include a detailed explanation, any additional documentation they may have about the excess contributions along with proof that their excess TFSA amount has been corrected.
   
   TFSA Processing Unit
   Post Office Box 9768 Station T
   Ottawa ON K1G 3X9
   

We will review their request and send them a letter explaining our decision. After a notice of assessment has been issued, if they still disagree with our decision, see What should you do if you disagree with your assessment?

If we do not receive a response from the individual, we will issue an assessment based on the information on file. This assessment will include any penalties and interest that may apply.

There are provisions in the Income Tax Act that allow the CRA to grant relief involving excess TFSA contributions, in certain instances. Subsection 207.06(1) of the Act allows the Minister the discretion to waive all or part of the tax imposed on excess TFSA contributions, if the Minister is satisfied that the tax liability arose because of reasonable error; and the individual arranges, without delay, for the contributions to be withdrawn. Requests are reviewed on a case-by-case basis and any decision to grant or deny relief is based on the specific circumstances and a review of all the facts.

Notice of assessment and possible objection

It is important to note that no part of the proposed return package constitutes a formal notice of assessment. As such, clients at this stage who disagree with part or all of the calculated tax payable should not file a formal objection (T400A). This should only be considered if a TFSA notice of assessment is subsequently issued which they disagree with.

Possible excess contributions

We would recommend that anyone who has already over contributed to their TFSA withdraw the excess as soon as possible. Withdrawing the excess portion as soon as possible will reduce the amount of potential excess contribution tax payable.

If individuals are unsure, based on a combination of contributions and withdrawals through 2009 and to date, whether they have excess contributions, they can review detailed information and examples included in Guide RC4466, Tax-Free Savings Account (TFSA), and the various TFSA-related Web pages on the main CRA internet site available at The Tax-Free Savings Account. Individuals can also contact the CRA at 1-800-959-8281 for English enquiries and 1-800-959-7383 for French enquiries.

Date modified:

2016-11-16