Go to the Globe and Mail homepage

Jump to main navigationJump to main content

TFSAs

Persistence pays in battle with taxman Add to ...

The Canada Revenue Agency has brought out the pit bull in George Czerny.

When the CRA told him last summer he owed $200 because of an overcontribution to a Tax-Free Savings Account, Mr. Czerny started cranking out letters. The 65-year-old ex-newspaperman wrote to his MP, he wrote to Finance Minister Jim Flaherty, he wrote to Revenue Minister Keith Ashfield and he wrote to the CRA.

More related to this story

"I was ticked, and I kept on writing to them. I was tenacious - that's why I say I had to be like a pit bull," Mr. Czerny said from his home in Craigleith, Ont., where he operates a bed and breakfast. "I'm just a regular Canadian guy who likes to write letters if I feel I've been wronged."

Score one for the aggressive approach. Earlier this month, Mr. Czerny got his $200 back from the CRA along with $2.53 in interest.

Mr. Czerny's cheque signals the end phase of last summer's uproar over letters the CRA sent to more than 72,000 people to inform them that, based on information supplied by their financial institutions, they owed tax because of a TFSA overcontribution in 2009.

The letters were sent June 1, and quickly generated horrified responses from taxpayers who did not understand a key TFSA nuance. If you make your maximum contribution and then take some money out in the same year, you have to wait until the next calendar year to replace it.

It quickly became apparent that many people were moving money in and out of TFSAs without regard for this rule. CRA's response was to say it would consider providing relief from the overcontribution tax on a case-by-case basis for people who had made a genuine mistake.

The federal agency now says that 21,000 requests for relief were received as of early 2011. So far, more than 15,500 people have had approximately $2.8-million in tax waived, and another 5,800 cases are still being analyzed.



I was flabbergasted to find out that the CRA was looking upon my account as if I had put $8,500 in - the $5,000 plus $3,500. I was shell-shocked. I thought, how could I have been caught in this? It's crazy.




The story of how Mr. Czerny beat the taxman begins in March, 2009, when he contributed the maximum $5,000 to a TFSA at a branch of one of the big banks. He withdrew $3,500 a few months later and then a month after that put it back on the understanding that one of the great things about TFSAs is that you can recontribute money you withdraw.

It was in CRA's letter to him last June that Mr. Czerny found out there's a little more to TFSA recontributions than he thought.

"I was flabbergasted to find out that the CRA was looking upon my account as if I had put $8,500 in - the $5,000 plus $3,500. I was shell-shocked. I thought, how could I have been caught in this? It's crazy."

Mr. Czerny blamed his confusion on a lack of clarity from Ottawa and the financial industry in explaining TFSA overcontribution rules. A perfect example of this informational slackness was found by Mr. Czerny himself in a federal government brochure that he scanned and then e-mailed to me.

After explaining that you can withdraw money from a TFSA at any time for any reason, the brochure goes on to say: "The amount withdrawn can be put back in the TFSA at a later date without reducing your contribution room." No mention is made here of the overcontribution danger.

Payment First, Then Protest

Mr. Czerny paid the $200 CRA said he owed right after receiving his notice, and then he began writing letters. Among them was a five-page note to the CRA assistant director, data assessment and evaluation programs division, who had signed the initial notice telling him about his $200 tax debt.

"... It seems as if the entire TFSA penalty thing (as it applies to me and thousands of other people for 2009) involves a massive miscommunication between Canadian financial institutions, chartered accountants and the CRA," he wrote. "Doesn't it make sense to you and your superiors that had we known of the stiff penalties for overcontribution we would not have done it?"

Mr. Czerny may have rambled a bit in the rest of his letter, but his point was made well enough to prompt the return of his money along with a friendly note from the taxman about the $2.53 interest paid on his tax reimbursement.

"They reminded me that the refund interest is taxable in the year it's received and must be included as income in your 2010 income tax return."



The TFSA overcontribution uproar



4.6 million+: Total number of TFSAs set up

72,000: Number of notices sent out by CRA last year about TFSA overcontributions in 2009

28,000: Number of people who paid their overcontribution tax and did not ask for relief

21,000: Number of people who requested a review of their case

15,500: Number of people receiving a tax waiver

$2.8-million: Total taxes waived

5,800: Cases still being analyzed

Penalty for TFSA overcontributions: 1 per cent per month of the excess contribution



Information on TFSAs: cra-arc.gc.ca/tfsa/



Source: Canada Revenue Agency

Follow on Twitter: @rcarrick

 

More related to this story

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular