A news release landed in my inbox on Tuesday that got me thinking about TFSAs.
"Bank of Montreal announced today that its Tax-Free Savings Account (TFSA) will now offer a 1.75-per-cent interest rate on cash savings - the highest among the big five Canadian banks," it read.
My first thought was, "Seriously? That's the highest interest rate?"
My second thought was, "Whatever happened to those 72,000 people who got dinged by TFSA penalty taxes?"
When I last wrote about this issue in late June, Ottawa had just announced it had decided to "be as flexible as possible" and waive penalties in cases of true misunderstanding of the TFSA contribution rules. So then what happened?
According to spokesman Philippe Brideau, the Canada Revenue Agency received 58,000 responses to the TFSA proposed returns, and of them, almost 70 per cent included a payment, while about 23,000 requested tax relief.
"Our officials continue to work diligently to examine each situation on a case-by-case basis in order to make an informed decision. The CRA anticipates that the majority of replies will be issued before the end of November," Mr. Brideau said.
It can't come soon enough, according to some of the over-contributors I've talked to recently.
Kate Traill got hit with a $600 penalty tax after her bank incorrectly told her she could transfer her $5,000 contribution to another institution through her savings account without any penalties or fees. Her case is still unresolved.
She wrote, "The government issued their letter regarding their willingness to work with people regarding unintentional over-contributions before I paid the fine, thus while I have not heard anything from the CRA confirming that the tax has been waived, I am not currently out of pocket as many are. A resolution would be nice!"
Francois Lucas and his wife paid a $250 penalty tax because they were not properly informed by their bank about how to move their money. "We have received a receipt from CRA that acknowledges the fine payment. I have no idea of when (or even if) we will get the refund."
John Stockton, a Toronto retiree, got dinged for $200 after he moved his $5,000 contribution from one financial institution to another to get a better interest rate. "I sent in all the forms/info to the CRA by the end of June, but I haven't heard a peep from them," he said, adding that his wife has recently received word that she will not have to pay her penalty taxes.
And Doug Belsher of Williams Lake, B.C., said he and his wife made the same mistake, resulting in a $150 penalty tax. "We are still waiting for a reply from Ottawa."
Judging by the harsh comments left on my last article, many Canadians will have no sympathy for what TFSA rule-breakers are going through.
As banks begin to compete for customers by offering higher rates, its inevitable that Canadians will move their TFSA contributions to take advantage. If you're one of them, make sure you read the fine print first. You can't simply withdraw the funds from one account and deposit them into a new one during the same calendar year, as some banks have led customers to believe.
If you forget this important rule, you'll get little sympathy from your fellow tax payers, and I'll be writing about you next year.