TFSA Taxable?

[JoyBlogette]

So I just got a Notice of Assessment on my TFSA and the government wants me to pay 1% tax on my total amount x each month it was in the account last year (12 months) for a total of about $300k ($25k balance x 12 months) x 1%.

I transfered my TFSA to another financial institution last year so I am guessing it was reported incorrectly somewhere along the way.  Has this happened to anyone else?

New advice: NEVER transfer TFSA.  Withdraw in December and Deposit in January into new account.  Lesson learned.

[SoftwareGoddess]

If you have $300K in your TFSA, then, yes, most of it is probably taxable. The contribution limit was $5K per year for 2009-2012, and $5.5K for 2013 and 2014. Assuming you are not a super-investor that turned $31K into $300K in 5 years, then the CRA is (I assume) taxing you on your contributions over 31K.

See this for more info: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/cntrbtn-eng.html

[AssetGrinder]

woah 300k in a tfsa!!! I have 33k but i just started it a couple months ago. From what I know none of the gains are taxable even if it grows beyond a million. But if you withdraw the amount anytime in the year you cannot put it back into your account until jan 1 the following year. I guess transferring caused some sort of blunder in the system. I think you can fix the problem by making a few calls. If the problem persists then take out the money asap and put it back in on jan 1 2015

[JoyBlogette]

No, it's $25,000 (approx), but the interest is charged on the amount in "excess" each month.  Since they deemed the whole amount in excess they charge $25k for each month that it is "in excess" and then interest is charged on that total
i.e. $25k + $25k +$25 +... (12 times) = $25k x 12 = $300,000.

[jambongris]

I don't think the OP has $300k in their TFSA, although that was my first impression as well. I think they have about $25k.

They said they have to pay 1% of the total TFSA value * the number of months it was in the wrong account.

$25k * 12 months * 1% OR the equivalent of ~$300k * 1%

If I misunderstood and they actually have $300k in their TFSA then that is indeed impressive.

[JoyBlogette]

I don't think the OP has $300k in their TFSA, although that was my first impression as well. I think they have about $25k.

They said they have to pay 1% of the total TFSA value * the number of months it was in the wrong account.

$25k * 12 months * 1% OR the equivalent of ~$300k * 1%

If I misunderstood and they actually have $300k in their TFSA then that is indeed impressive.

You are correct in your math... see my note above (posted 1 minute before yours).

[SoftwareGoddess]

No, it's $25,000 (approx), but the interest is charged on the amount in "excess" each month.  Since they deemed the whole amount in excess they charge $25k for each month that it is "in excess" and then interest is charged on that total
i.e. $25k + $25k +$25 +... (12 times) = $25k x 12 = $300,000.

Thank goodness. :-)

This hasn't happened to me, but if it did, I would be following up with both the old and new institutions to find out what happened and fix it. I'd probably also have a discussion with someone at the CRA. I'm sure that they have dealt with this problem before.

[UFO]

This doesn't add up.

0.01 * 12 * 25k is 3000, not 300k. So at worst OP will need to pay three thousand in punitive interest -- excess amount itself is never charged (I got hit with $129 charge myself few years ago).

The only way they could charge 300k is if during transfer 25k got deposited and withdrawn 100 times. Then JoyBlogette will pay 1% per month on over-contribution for 454 years until available contribution room grows over 25 million (assuming 5.5k per year increase), because there is no other way to reduce the amount, except maybe by contributing another 25M and having it grow to 50M and then withdrawing it.

Maybe that's how they plan to fix budget deficit?

About the worst actual thing one can do with TFSA (that is not a system error) is contribute way over limit and lose it all on penny stocks.