Every year, financial planner Travis Koivula has clients who look at their TFSA information on the Canada Revenue Agency website and conclude they have more contribution room than they thought.
“We have to stop them and say, no, actually the website is wrong,” he said.
Mr. Koivula calls the first four months of the year a “danger zone” for making deposits to tax-free savings accounts. During this period, CRA shows TFSA contribution room for the current calendar year that can be based on incomplete information. Contributions you made to your account in the previous calendar year will likely not be reflected until March or April.
The importance of up-to-date information on contribution room cannot be overstated for busy people who are avid TFSA users. If you lose track of how much you’ve added to your TFSA in the past year and act on the amount displayed by CRA right now, you put yourself at risk of a penalty of 1 per cent of your excess TFSA contribution per month.
A personal finance column last week noted that overcontribution penalties assessed by CRA totalled $132.6-million in 2022, with an average penalty of $1,461.18. Kevin Hilgers, a reader in Victoria who considers himself financially savvy, e-mailed after he read that column to say he had to pay a fine of several hundred dollars for a TFSA overcontribution. “If I can screw this up so easily, what about others who may not be so astute at finances?”
The limit for TFSA contributions this year is $7,000, up from $6,500 last year. Even if you max out your TFSA every year, it’s possible you could look up your contribution room for 2024 on CRA’s online My Account service today and see $13,500 displayed.
CRA does attempt to point out this potential discrepancy via a link next to your contribution amount labelled “Important Information.” But this information can be confusing.
“Your financial institution sent the CRA information about TFSA transactions you made on or before December 31, 2023,” CRA says in its note to My Account users. Then, lower down, it says, “Your previous year’s transactions may not have been received or processed by CRA and therefore would not yet be reflected in the amount.”
If you’re unsure of what contributions have been noted by CRA, try clicking on the “transaction summary” link on My Account. All the financial institutions you deal with for TFSAs are included there, and you can search transactions year by year. I looked up my TFSAs last week and saw no transactions listed for 2023. despite having used up all my contribution room.
CRA says TFSA contribution room isn’t updated faster because financial companies have until the end of February to supply this information. “Based on the filing trend from the previous year, we expect less than 10 per cent of the TFSA annual information returns to be filed and processed by the end of January,” the federal agency said in an e-mailed response to questions.
Underlining the incomplete aspect of TFSA contribution room shown early in the year, CRA said it’s important for people to compare the transaction information presented on My Account with their own records.
Mr. Koivula , who works at Island Savings Wealth Management, said CRA could address confusion about TFSA room by not displaying an individual’s contribution limit until April, when all contributions should have been noted. Alternatively, there could be a more prominent warning that TFSA room shown early in the year may be incomplete.
The delay in posting up-to-date TFSA contribution room helps explain why TFSA overcontribution penalties can be quite large.
“Chances are that if you make your TFSA contribution in January of 2024, you’re not going to get notified of an overcontribution until August, 2025,” Mr. Koivula said.
Let’s do the math in this case mentioned by Mr. Koivula. If you accidentally contribute the 2023 maximum of $6,500 along with the 2024 limit of $7,000, your penalty would be 1 per cent of $6,500 for 20 months. That’s $1,300 in total.
A basic TFSA rule to follow: If you rely on CRA to confirm how much TFSA room you have rather than your own records, wait until April to find out your contribution limit for the current year. Also, verify your contribution room by consulting the online TFSA transaction summary shown in My Account. Ensure it reflects your contributions from the previous calendar year.
Be vigilant about not overcontributing in the current year, and about possible overcontributions you inadvertently made in the previous year or two. If you notice an overcontribution before CRA does, withdraw the excess immediately. To pro-actively report an excess TFSA contribution to CRA, use a form called the RC243 and a related Schedule A that can help you calculate the amount of your penalty. You can also ask CRA to waive a penalty if it was made through a “reasonable error.”
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Rob Carrick