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tax matters

I love the game Monopoly. From time to time, I’ll play the game with my kids, excited to be teaching them the art of negotiation and basically accumulating wealth at the expense of all those around me. Having said this, I agree with joke blogger Kent Graham that Monopoly game pieces should be reflective of how long it takes to play the game: A doctor’s waiting room chair, or a road construction pylon would be appropriate.

My favourite card in the deck of Community Chest cards in the game of Monopoly is the one that says: “Bank error in your favour, collect $200." Except that it rarely happens in real life. Today I want to share the true story of a man, Mr. G, whose financial institution made an error related to his tax-free savings account – but not in his favour, because it led to a court challenge with the Canada Revenue Agency. We can learn a few things from his plight.

The story

In 2014, Mr. G wanted to open a TFSA account at a new financial institution, so he withdrew $5,500 from an existing TFSA account and immediately contributed those funds to the TFSA at the new institution. The Canada Revenue Agency (CRA) recognized this as an overcontribution because Mr. G was not entitled to recontribute the withdrawn amount to a TFSA until 2015. That’s how the recontribution rules work. So, the CRA assessed an overcontribution penalty of $440. Mr. G objected and requested a waiver of the penalty and interest, which CRA granted to him in 2014.

But the story isn’t over yet. In 2016, Mr. G had TFSA contribution room of just over $10,000 available. So, on Jan. 8, 2016, he called his financial institution to instruct them to transfer $10,000 into his TFSA. Then, 10 days later, he made a second call to ask whether his contribution had been processed. The clerk on the phone failed to see that a colleague had already processed the contribution, and proceeded to redo the contribution, resulting in total contributions to his TFSA of $20,000 for 2016, and an overcontribution to his TFSA of about $10,000.

After a few months, in June, 2016, Mr. G decided that he wanted to split his TFSA at the new financial institution into two separate TFSA accounts. So, he called his financial institution and gave directions over the phone to split the accounts, but these directions were mistaken for an order to contribute $10,000 to a new TFSA account. So, Mr. G ended up with $30,000 of contributions to his TFSA for 2016, and excess contributions of about $20,000.

Mr. G didn’t notice the excess contributions until he received an assessment from CRA in July, 2017. When he discovered the problem, he withdrew the excess $20,000 from his TFSA. The CRA assessed a penalty of $1,785 under our tax law. Mr. G requested relief from this penalty, but was denied that relief in a letter from the CRA in September, 2017. He requested a second review. In May, 2018, he was again denied relief because he was a “repeat over-contributor,” according to the CRA.

In the end, Judge Keith Boswell of the Federal Court (2019 FC 1031) sided with Mr. G. The overcontributions arose owing to a miscommunication between Mr. G and his financial institution, and were outside of his control. The fact that he had caused overcontributions to his TFSA in 2014 was not connected to the question of whether relief should be granted regarding the overcontributions in 2016. So, the judge viewed the CRA’s categorization of Mr. G as a “repeat over-contributor” to be unjustified.

The judge ordered the decision of the CRA in May, 2018, to be set aside and for the matter to be returned to the CRA for redetermination by a different CRA employee.

The lessons

What takeaways are worth noting from Mr. G’s story? Here are a few things to consider:

  • The CRA is tracking contributions to TFSA closely, so if you happen to make an overcontribution, the taxman will know about it pretty quickly.
  • Solving an overcontribution problem can be a tax headache, even if it isn’t your fault, so review your TFSA balances often and make sure there isn’t more in your plan than there should be.
  • Repeat offenders will be treated more harshly. If you’ve overcontributed to your TFSA before, don’t expect the taxman to be lenient when it comes to waiving penalties and interest.
  • If you want to move assets from one TFSA to another, make sure you initiate a direct transfer from one TFSA to the other, as opposed to making a withdrawal from one TFSA and then recontributing the amount to another plan. This would have solved Mr. G’s 2014 problem.

Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at