A recent Tax Court case demonstrates the costliness of over-contributing to a TFSA. An Ontario taxpayer who owns a roofing company inadvertently deposited $40,000 into a TFSA account instead of his regular chequing account. He was then punished with over $2,000 in penalties. The man had made smaller over-contribution previously receiving a warning letter from the CRA in response. This time, the CRA assessed a penalty tax. Tax Court judges are not allowed to cancel penalty taxes. Only the CRA can do that, which is what the judge in this case urged them to consider.
“It used to be the CRA’s practice to automatically assess the TFSA overcontribution penalty. In response to numerous innocent overcontribution errors, the agency changed its policy in 2016.”