A single, ill-chosen word on the Canada Revenue Agency website appears to have compounded confusion about a popular tax shelter that left 72,000 people with unexpected tax notices last year.
Agency bureaucrats used the phrase "excess" contributions to describe a situation in which someone puts too much money into their Tax-Free Savings Account in any year.
But Canadians using Google to find information about TFSA limits typically type "over-contribution," an internal study found - a phrase not found on the agency's site referring to the tax shelter.
"The search term 'contribution' or 'over-contribution TFSA' input into Google search did not lead to the Tax-Free Savings Account for Individuals Web page," says the study.
And if a determined taxpayer did manage to find the "excess contributions" page on the website, the section "does not explain what steps the taxpayer must follow to remedy the situation."
The number of visits to the "excess contributions" page dropped by almost 10 per cent from the previous year, even though the number of general visits to the CRA site were higher, the internal report found.
The phrase "over-contribution" was added to the site in April to remedy the problem, which did increase traffic to the appropriate TFSA web page by almost 16 per cent. But by then, many Canadians had already filed their income-tax returns for the April 30 deadline.
The Canadian Press obtained the internal study under the Access to Information Act.
Millions of Tax-Free Savings Accounts were set up after they came into effect on Jan. 1, 2009. Canadians can deposit up to $5,000 each year, and any earnings in the account attract no taxes, though deposits do not reduce taxable income as do RRSP deposits.
At least 72,000 Canadians were hit with unexpected tax notices last June indicating they might have violated a key restriction on Tax-Free Savings Accounts.
The little-known rule says account holders can restore amounts they take out of a TFSA only in a subsequent calendar year. If they do so in the same year, they could face a tax hit for their "over-contribution," even though they're only replacing the withdrawn funds.
A spokesman for the agency said that "as a result of the [internal]report, the CRA has made changes to its website to ensure that keywords direct Canadians to the appropriate TFSA pages."
Noel Carisse also noted that there were problems in only a small fraction of all TFSA accounts.
"Over 98 per cent of Canadians who opened a TFSA understood the rules and contributed appropriately," he said.
The latest internal report parallels the findings of a focus-group study, commissioned by the agency, which found that people who are experienced in Web surfing have serious problems navigating the Canada Revenue Agency site.
"Overall, less than half the participants arrived at the correct information page within the time allotted (three to five minutes), and only a small number arrived at this page quickly," said the November report by Sage Research Corp.
"Several participants commented that had the moderator not told them to look for a TFSA guide, they would never have realized a guide is available at the site."
The agency has issued tax waivers - averaging $179.10 each - to more than three-quarters of the 22,000 TFSA account-holders caught by the rule last June and who later asked for relief. They're reviewing the files of the remainder.
Confusion about the TFSA over-contribution rule appears to have begun in early 2008, the very day Finance Minister Jim Flaherty announced the surprise tax shelter in his budget.
A glossy TFSA brochure released then listed various rules, and offered fictional examples of people who withdraw from their accounts and replace the money later.
But the rule about replacing funds only in a subsequent year never appears in the brochure, which was heavily reprinted with identical information and distributed across Canada, sometimes through MPs' offices.
"Our government recognizes that there was some genuine confusion about the rules for the TFSA in the first year," Mr. Flaherty and Revenue Minister Keith Ashfield said in a statement last June.