Financial professionals are calling on the Canada Revenue Agency (CRA) to make changes to its TFSA overcontribution reporting following problems with My Account, CRA’s online platform.
TFSA information was delayed on the platform earlier this year. Typically, advisors say the number is updated by April, but many Canadians had to wait until June to see their remaining contribution room, and 10% of Canadians waited even longer.
TFSA holders are subject to a 1% tax per month on overcontribution amounts.
Between 2015 and 2024, the number of TFSA holders grew to 19.3 million from 12.7 million — a 52% increase. The number of account holders who overcontributed quadrupled, to 133,000 from 33,000.
The CRA assessed $166.2 million in excess TFSA taxes in 2024, up from $130.8 million the year before. With this year’s technical difficulties, that number could climb. Advisors are calling for leniency.
Markus Muhs, a financial planner and portfolio manager with Canaccord Genuity in Edmonton, said many of his clients were affected earlier this year.
In January and February, some clients called and said, “‘Hey, Markus, I’ve got $14,000 of room.’ And I’m like, ‘No, you don’t, you have $7,000. It’s just not reflecting anything you did in the previous year.’”
Inaccurate information on My Account is more likely to affect Canadians who don’t max out their TFSA every year, Muhs said. Those who could afford to max out their TFSA and continue to contribute the maximum every year, and never withdrew, had an easier time tracking their limit.
Earlier in his career, Muhs maxed out his own TFSA. As his income grew, he shifted focus to his RRSP and let his TFSA contribution room accumulate. In 2024, he decided to use all his room and accidentally overcontributed by $4,000.
Muhs relied on My Account’s TFSA transaction record. “It turns out that information was wrong,” said Muhs, who made a series of contributions in 2013 and 2014 through a mutual fund company that went unrecorded.
“This year it would be nice if [the CRA] just said, ‘Hey, you went over a few thousand dollars … we apologize that the information might not have been accurate,’” he said. Moving forward, he argued, there should be a $2,000 overcontribution grace for the TFSA, as with the RRSP, with penalties reserved for egregious cases.
Let people know sooner
Erin, an advisor with a full-service broker in B.C., asked to remain anonymous as they’re not authorized to speak to media.
Erin noted that, for example, a contribution that went over the limit by $7,000 in January could have over $1,000 worth of fees after 18 months. That’s because the CRA won’t notify the taxpayer of an overcontribution until July of the following year. “At least let people know as soon as (the CRA) knows that there’s an overage,” Erin said.
Since financial institutions don’t submit TFSA data to the CRA until December, the contribution room displayed on My Account might not be updated until April, Erin added. The CRA should find a way to update sooner, so taxpayers can confirm by the first 60 days of the following year whether they overcontributed.
Since the CRA no longer shows TFSA contribution room on the notice of assessment, taxpayers must check their remaining room online or by calling the CRA, said Brian Wruk, who runs Transition Financial Advisor Group near Phoenix. Originally from Edmonton, Wruk holds designations in Canada and the U.S. and specializes in tax planning for dual citizens.
TFSA contribution room doesn’t increase while a Canadian lives outside the country, so accurate information is especially important for Wruk’s clients.
If the CRA isn’t providing clear information, the agency should “back off” if taxpayers withdraw the excess and make it right within 90 days of being notified, Wruk said. While he admits this could be exploited, the self-reporting tax system relies on taxpayers’ integrity.
Go easy on vulnerable taxpayers
“If the CRA cannot maintain adequate records, they need to have some measure of leniency when vulnerable taxpayers misstep,” said Wade Van Bostelen, a financial planner with IPC Investment Corporation in Burlington, Ont., in an email.
Many of those affected are seniors who, after making their regular annual contributions, are talked into another TFSA deposit by a well-meaning teller at a bank or credit union, Van Bostelen said. Seeing room on My Account, some unknowingly overcontribute.
For low-income seniors, those on the disability tax credit and students, the penalty is often more than any tax saved through the TFSA, he added. In such cases, educational letters should be sent and penalties waived where there are no immediate tax advantages.
On the other hand, he said, there must be some penalty for those who abuse the system deliberately to save tax.