CRA finds untimely withdrawal of excess TFSA amounts in two cases
The Federal Court has upheld as reasonable two decisions of the Canada Revenue Agency (CRA) that denied requests for waivers of taxes on excess tax-free savings account (TFSA) contributions.
The first case was Fang v. Canada (Attorney General), 2024 FC 1399. The applicant’s contribution room in her TFSA was $6,019.57 in the 2020 tax year. By the end of that year, she exceeded the contribution room by $40,619.57. In July 2021, the CRA required her to pay $7,307.97 in taxes on the over-contributions for the 2020 tax year.
The applicant requested a waiver of the tax. She cited personal circumstances including her father's death, the care of her aging mother, and work-related responsibilities during the COVID-19 pandemic. She also claimed that her bank failed to inform her that she would be exceeding her contribution limits.
In July 2022, the CRA denied the request on the basis that the applicant failed to withdraw the over-contributions within a reasonable time. She filed a judicial review application challenging the CRA’s decision.
The Federal Court dismissed the application upon finding the CRA's decision reasonable. The applicant only withdrew the excess amounts 221 days after the CRA notified her, the court ruled. The CRA’s manual stated that the withdrawal of over-contributions should be 30 days from the notification, the court noted.
The court rejected the applicant’s arguments that her bank misled her or that the CRA failed to properly consider her personal circumstances. Taxpayers were responsible for understanding their TFSA limits and for taking prompt action to remedy any over-contributions, the court said.
Tax relief denied
The second case was Saffari v. Canada (Attorney General), 2024 FC 1390. The applicant had a TFSA contribution room limit of $75,520.66 in the 2021 tax year. However, she directed her financial institution to transfer $293,251.04 from her investment account to her TFSA. This led to an over-contribution of $217,730.38.
In July 2022, the CRA notified the applicant that she owed $10,959.89 in taxes, penalties, and interest on the over-contributions in the 2021 tax year.
The applicant withdrew the over-contributions in October 2022, but $1,768.65 in funds remained at the end of that year. She requested relief from the tax. She explained that lacked knowledge about her contribution limit, received poor advice from her bank, and incurred investment losses.
The CRA denied the requested relief on the ground that the applicant failed to withdraw the excess contributions within a reasonable timeframe. Specifically, she made the withdrawal around three months after receiving the notice of assessment. This unfavourable decision prompted her to seek judicial review.
The Federal Court refused the relief requested and deemed the CRA’s decision reasonable. The court noted that investment losses were not considered withdrawals and that receiving poor advice from a financial institution did not amount to a reasonable error under the Income Tax Act, 1985.
The court rejected the applicant’s argument that her situation was analogous to other cases that granted relief due to banking errors. The court found no evidence of such an error in this case.
