Innocent Mistake Leads to TFSA Penalty

Robitaille v. The Queen (click here for decision)

The taxpayer inadvertently deposited $40,000 to his TFSA.   The CRA penalized him for it.  The Court upheld the penalty.

TFSA Over-Contribution

Take heed.  This is one of those cases everyone with a TFSA should be aware of.

Mr. Robitaille’s appeal related to a tax-free savings account (TFSA) over-contribution of $40,000 in the 2016 taxation year.  The Appellant claimed it was an innocent mistake, and the COurt did, in fact, believe him.

He withdrew $40,000 from his company as a shareholder withdrawal.  The amount was paid to the Appellant as a management fee for services rendered.  Late one evening following work, Mr. Robitaille visited the ATM to deposit the cheque into his chequing account.  He mistakenly deposited the funds to his TFSA rather than his chequing account.

Mr. Robitaille Warned in the Past

Mr. Robitaille had been warned in the past of a TFSA over-contribution.  In that incident, the CRA told him he had deposited a few thousand dollars in excess of the permitted amount to be deposited in that taxation year.  This is critical, because it points to the likely fact that the $40,000 deposit was a mistake.  If he was aware that a few thousand dollars would trigger a CRA letter, then certainly it could not be argued that he intentionally deposited many times that amount a year later.

Since Mr. Robitaille had an excess TFSA amount pursuant to 207.01(1) of the Income Tax Act, and since he had not complied with the stringent filing requirements in respect of the tax payable on the excess amount, the appeal was dismissed.

Main Point

What does this mean? It means, that, even if the Court believes you that you made a simple error when over-contributing to your TFSA, you may still be penalized.  This case serves as a warning that we must all be very careful with the TFSA contribution limits.  If something as obvious as a $40,000 deposit is subject to a penalty, then much smaller, harder-to-track amounts will be penalized as well.  Call Ummat Tax Law if you are assessed a TFSA over-contribution penalty.