Play By The TFSA Rules And You Won’t Get Burnt

by Pam on June 17, 2010

Many Canadians have recently received unwelcome letters from the Canada Revenue Agency (CRA) regarding excess contributions to their Tax Free Savings Accounts (TFSAs).  Penalties in the form of fees owing to the government were assessed for excess contributions made during 2009.

Most people affected were likely confused by the restrictions placed on the TFSA by the government.  The important thing for Canadians to understand is that once you have used your contribution space for the year, even if you withdraw from your TFSA, you cannot put that money back until the following year.

In other words, if you contributed your full $5000 into your TFSA on January 15, 2009, and then on March 12, 2009 you decided to withdraw $2000, you would not be able to put the $2000 back in again until 2011 or thereafter.  So, you wouldn’t lose your contribution room permanently, but you would lose the privilege of that contribution space for the current year.

Now that 2010 has rolled around, Canadians are allowed to put an additional $5000 into their TFSA in addition to any amounts they withdrew in 2009.  It’s the responsibility of the individual TFSA holder to keep track of how much they are allowed to contribute.  Don’t depend on your bank or credit union to keep track of this for you.

The TFSA is a great tool for saving for any savings goals that you might have, whether they are short, medium, or long term goals.  The key is to make sure that you understand the rules in order to prevent any nasty surprise letters from the CRA.

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