Two CRA disputes show Canadians still don’t know TFSA contribution rules

financialpost.com:

Two new Federal Court decisions decided earlier this month demonstrate that some taxpayers continue to mess up when it comes to tax-free savings account contributions.

Each case had its own set of facts and circumstances, but the taxpayers in both cases failed to understand their contribution limits and the need to expeditiously withdraw any overcontributions in a timely manner if they were to have any hope for relief from the Canada Revenue Agency.

Let’s review the basic rules. The penalty for overcontributing to your TFSA is one per cent per month for each month you’re over your limit. If you get assessed with a TFSA overcontribution tax, you can ask the CRA to waive or cancel it, which the agency has the power to do if it can be established the tax arose “as a consequence of a reasonable error” and the overcontribution is withdrawn from your TFSA “without delay.” If the CRA refuses to cancel the tax, you can take the matter to federal court, where a judge will determine whether the agency’s decision not to waive the tax was reasonable.

In the first case, the taxpayer, who was self-represented, started off on the wrong foot by appealing the overcontribution tax to the Tax Court, which was the wrong court as it has no jurisdiction to cancel the TFSA overcontribution tax. The Tax Court, accordingly, dismissed the case, and the taxpayer then brought her case to the proper court, the Federal Court.

The taxpayer’s troubles can be traced back to 2019, when she made a $34,600 contribution to her TFSA. Her TFSA contribution room that year was $34,620. On Jan. 1, 2020, another $6,000 of new contribution room opened up, and combined with the $20 carried forward from 2019, that meant her limit for 2020 was $6,020. The taxpayer