Harper’s ‘TFSA’ claw-back Scam

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By David Barclay on 16 September 2011 - 4:20pm

The Harper government is bilking a fortune in ‘penalties’ from naive Canadians who aren’t savvy investors, and who have, in good faith, deposited money into a Tax-Free-Savings-Account.  Many Investment Institutions dutifully report all transactions on each TFSA.  With the result that when an individual is encouraged to roll-over the money from a TFSA ‘basic’ savings account into a higher yielding TFSA-GIC or TFSA-investment, the government is counting this as a new, unauthorized contribution, over and above the $5000. per year limit – even though its Not *new money, just a transfer.

For example the tax-penalty assessed on $5000. deposited in 2010, then rolled-over to a GIC in the same year is 1% Per Month, on the $5000. fictional ‘over-contribution’.  Up to $600. for the year.  After a totally inscrutable and cryptic notification from Revenue Canada that even a forensic accountant couldn’t understand, you have just 60 days to somehow convince the government, in writing, this is a mistake, with back-up documentation from the institution.  The investment companies are swamped with requests for clarification from investors. 

Canadians who simply don’t understand what’s happening are either waiting for their institution to solve the problem, or are panicking and just closing down their TFSA’s and will be liable for paying the penalties.  (Instead of making for example, 2% Tax-Free on each $5000. investment = $100. in interest - at a tax rate of 40% is a savings of just: $40.) Each person will be paying the Harper-government $50 per month up to $600. just in 2010, in penalties. Double that amount for a couple.

But according to the Conservatives, its all just a matter of ‘communication’.  Another accidentally-on-purpose ‘misunderstanding’, designed to fail.    The smart fish eat the dumb fish.

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TFSA...

Submitted by Bram Kivenko on 17 September 2011 - 12:55am.

Everyone need treat a TFSA similar to an RRSP.  In reality, the difference is that you simply cannot accidentally withdraw from an RRSP and not know what happened, whereas it can happen rather easily with a TFSA.  If you want to move from one TFSA savings vehicle to another, you must expressly request to have it designated as a transfer and you will have to sign at least one form if the money is going to another institution.

As a side note, if you open a TFSA at a discount broker, then you won't have this problem.  If you buy a GIC within a TFSA broker account, the money simply returns to the TFSA when the GIC matures, and there is no concern (like a self-directed RSP)

Regulations should be changed to require TFSA withdrawls to be designated explicitly as either drawdowns or transfers. Although banks want to make TFSAs convenient, if you want access to your funds, you should have to sign a piece of paper that says you are drawing down or transferring.  The bank shouldn't be allowed to cause a withdrawl without a signature at the time the withdrawl is to happen.  I don't fault the banks.  It's the regulations that need updating...  Otherwise people will complain that they can't get at their money and blame the banks.

This is a simple fix.  There is no excuse for it to continue.  Write Flaherty and tell him to get off his duff and fix it.