Canadians who accidentally put too much into their Tax-Free Savings Accounts can breathe a sigh of relief.
Ottawa has decided to "be as flexible as possible" and waive penalties in cases of true misunderstanding.
Minister of National Revenue Keith Ashfield and Finance Minister Jim Flaherty issued a joint statement Friday saying the government "recognizes that there was some genuine confusion about the rules for the TFSA in the first year."
They acknowledge Canadians are still learning about the program and that some may have been misinformed by their financial institutions.
Investor Education: TFSAs
"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," they said. "Our intention is to review each situation on a case-by-case basis and, where appropriate, waive taxes on excess contributions for this year."
Canadians who stand a good chance of being forgiven are those who used their TFSAs like a bank account, making deposits and withdrawals on a frequent basis, and those who transferred funds between TFSAs at different institutions but whose net contributions never exceeded the 2009 limit of $5,000.
Of the nearly 4.7 million Canadians who opened a TFSA, some 70,000 received a letter from the CRA telling them they had gone over the $5,000 limit and would have to pay a 1-per-cent penalty tax for each month they were in an overcontribution position. In some cases, the taxes added up to hundreds of dollars.
John Stockton, a 60-year-old Toronto retiree who got hit with a $200 penalty after he moved his $5,000 contribution from one financial institution to another, said the government is doing the right thing.
"I feel elated. I figured they would as there's just been too many articles and too much bad publicity."
Peter Aceto, president & CEO of ING Direct Canada, said he is glad the government has offered some relief to those who made mistakes with their TFSAs. "The government has taken a positive first step in helping people unaware of the intricacies of this new savings vehicle."
The government has also pushed back the June 30 deadline by which Canadians need to respond to the CRA letters to Aug. 3. Those who plan to appeal their penalties need to either respond to their CRA letter with an explanation of how their overcontribution was accidental, or wait for their assessment notice and then file either a Request for Taxpayer Relief form or a formal Notice of Objection.Report Typo/Error