Canadian Tax Free Savings Mishaps Waived By Govt

by Mike Godfrey, Tax-News.com, Washington

29 June 2010

The Canadian government has released an update regarding Tax Free Savings Accounts (TFSAs) following cases where taxpayers misunderstood contribution rules and incurred unintended taxation.

In a statement on June 25, the government said: “The government recognizes that there was some genuine confusion about the rules for the TFSA in the first year. We understand that it may take time for some Canadians to learn about the program and for some financial institutions to properly inform their clients about this product.”

The statement continued:

“The government of Canada confirms that for the 2009 filing year, the first year of the program, we have taken the decision to be as flexible as possible in cases where a genuine misunderstanding of the TFSA contribution rules occurred. Our intention is to review each situation on a case-by-case basis and, where appropriate, waive taxes on excess contributions for this year.”

“For instance, individuals who used their TFSA as a regular banking account in 2009, making deposits and withdrawals on a frequent basis, or who have transferred funds between TFSAs at different institutions, but whose net contributions never exceeded the 2009 limit of CAD5,000, may not be required to pay the tax on excess contributions for this year.”

Since the Tax Free Savings Account program was launched in 2009, approximately 4.7 million Canadians have taken out a TFSA.

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