Clients who overcontribute to TFSAs may pin the blame for that error on you.
I spoke with one GTA-based advisor whose client put in an extra $5,000. CRA dinged her $550, and she asked him to pay the penalty.
Turns out, she forgot about a pre-launch contribution made in 2008 just after the program – which formally began in 2009 – was announced by the government. And the advisor didn’t start administering her accounts until 2010.
Read: Educate clients about TFSA stipulations
But these mistakes can still happen. Here’s how.
At least one bank still offers a forward-contribution option starting each October. It works like this: contribute before year’s end, and you’ll earn additional bank interest until December 31. On January 1, the money’s automatically transferred to into an actual TFSA account.
Good for interest earning; not good for record keeping.
The lesson: Clients can forget about low-dollar-figure contributions to accounts such as TFSAs. And, if they hold them with multiple institutions or advisors, they’re less likely to tell you about all of them.
Read: Ask clients to consolidate
In part, that’s because CRA doesn’t provide updates to taxpayers detailing their remaining contribution room. And when it does track inputs, the reporting’s prone to errors. I logged into CRA’s “My Account” function, and my 2011 contributions don’t appear; the site says I have $5,000 of room to play with. I don’t.
One would think that if CRA is going to assess penalties, it could at least put accurate TFSA information on its notices of assessment.
Read: Thousands break TFSA tax rules
Until that happens, and it may never, make sure you ask clients:
- Do you already have a TFSA?
- Do you have more than one?
- If so, how much is in each?
As for that $550 penalty? The client’s backed off from the advisor and is going to appeal directly to the CRA’s good graces.
But some of you may not be so lucky.