CRA Urged to Grant TFSA Overcontribution Penalty Relief After My Account Delays

Industry professionals call for leniency and quicker notification processes following platform delays.

Financial professionals are calling on the Canada Revenue Agency (CRA) to revise its TFSA overcontribution reporting system and grant relief to taxpayers following significant delays and technical issues with My Account, the CRA’s primary online platform.

Earlier this year, TFSA information updates on My Account were severely delayed. Typically, advisors expect the contribution room to be updated by April, but many Canadians had to wait until June to see their updated remaining contribution room, with 10% waiting even longer.

TFSA holders who exceed their limit face a penalty tax of 1% per month on the overcontribution amount.

Between 2015 and 2024, the number of TFSA holders surged by 52%, growing from 12.7 million to 19.3 million. Concurrently, the number of account holders who overcontributed quadrupled, increasing from 33,000 to 133,000.

The CRA assessed $166.2 million in excess TFSA taxes in 2024, up from $130.8 million the previous year. Given this year’s technical difficulties, that number could climb, leading advisors to advocate for leniency.

The Problem of Delayed and Inaccurate Data

Markus Muhs, a financial planner and portfolio manager in Edmonton, stated that many of his clients were impacted by the inaccurate data displayed on My Account early this year.

“In January and February, some clients called and said, ‘Hey, Markus, I’ve got $14,000 of room.’ And I’m like, ‘No, you don’t, you have $7,000. It’s just not reflecting anything you did in the previous year.’”

Muhs noted that inaccurate My Account information disproportionately affects Canadians who do not maximize their TFSA every year. He himself accidentally overcontributed by $4,000 after relying on My Account data that failed to reflect contributions made years earlier.

“This year it would be nice if [the CRA] just said, ‘Hey, you went over a few thousand dollars… we apologize that the information might not have been accurate,’” Muhs said. Moving forward, he argued for a $2,000 overcontribution grace period for the TFSA, similar to the RRSP, reserving penalties for egregious cases.

Calls for Quicker Notification

An advisor in B.C., who wished to remain anonymous, highlighted the steep cost of delayed notification. A contribution that exceeds the limit by $7,000 in January could accumulate over $1,000 in fees after 18 months, as the CRA often doesn’t notify taxpayers of an overcontribution until July of the following year. “At least let people know as soon as (the CRA) knows that there’s an overage,” the advisor said.

Brian Wruk, specializing in tax planning for dual citizens, explained that since financial institutions don’t submit TFSA data until December, the room displayed on My Account may not update until April. He suggests the CRA should find a way to update sooner so taxpayers can verify their status within the first 60 days of the following year. Wruk argues that if the CRA fails to provide clear information, it should “back off” if taxpayers withdraw the excess and rectify the situation within 90 days of being notified.

Leniency for Vulnerable Taxpayers

Wade Van Bostelen, a financial planner in Burlington, Ont., stressed that “If the CRA cannot maintain adequate records, they need to have some measure of leniency when vulnerable taxpayers misstep.”

He pointed out that many of those affected are low-income seniors, disability tax credit recipients, and students who unknowingly overcontribute. Often, the penalty tax for these groups exceeds any tax saved through the TFSA. In such cases, educational letters should be sent, and penalties waived where no immediate tax advantage was gained. He agreed, however, that penalties must remain for those who deliberately abuse the system.