Ottawa chastised for handling of TFSA tax rules

The Canada Revenue Agency should have been more active in fulfilling its responsibility of letting Canadians know the tax consequences of the Tax-Free Savings Account (TFSA), says a new report from the federal Taxpayers' Ombudsman.

Although the rules regarding withdrawals and over-contributions were available on the CRA's website from the start of the program, the report released Monday said the federal agency should have taken additional steps to let people know where to find it and how crucial it was.

"They did not do a good enough job of alerting people that [the information] was there and that it was important," Paul Dubé, the ombudsman, said in an interview.

"The TFSA is only tax-free if you follow the rules," he added.

In his report, Mr. Dubé recommended that the CRA take steps to make Canadians more aware of the information it provides about the TFSA, that it update TFSA data and let Canadians know how to find the tax rules, and that it continue to work with the financial-services sector to make sure its information is available.

Revenue Minister Gail Shea said in a statement that the CRA will implement the ombudsman's recommendations and work with financial institutions and individual Canadians to make sure they have the information they need.

The CRA plans to update its TFSA web pages, issue tax tips, publish further information in community newspaper articles and host web seminars with financial institutions.

The ombudsman's investigation into TFSAs was triggered by complaints from some of the 72,000 people who received CRA notices last summer, telling them they owed tax because they had contributed too much to their TFSA in 2009.

Most of these people did not know that once you have made a maximum annual contribution of $5,000, you can take some money out in the same year but you have to wait until the next calendar year to replace it.

The CRA has since said it would waive the over-contribution tax fees for people who had made a genuine mistake, a response Mr. Dubé applauded in his report, Following the Rules.

The TFSA, introduced in 2009, has proved vastly popular with Canadians. But despite its popularity, Mr. Dubé's report noted there is still confusion about the tax rules governing the TFSA.

Amy Roy Gratton, a career-development officer in Edmonton, said she is still confused about the dos and don'ts of her TFSA, which she opened in 2009.

"The thing that attracted me to a TFSA was that you could have access to your money all the time," said the 31-year-old, who added that she did not know the rules around moving money in and out of TFSAs within a specific calendar year.

Ms. Roy Gratton said it would never have occurred to her to check the CRA website for TFSA information. Instead, she has been relying on information from her bank.

For information from the CRA website on TFSAs, click here.