TFSA payment of taxes
Most TFSA holders have no tax payable related to their TFSA investments, and no TFSA tax return has to be filed. However, when TFSA taxes are applicable for a year, Form RC243, Tax-Free Savings Account (TFSA) Return, must be filed by June 30, of the following year. Any tax owing must also be paid by that date.
The RC243-SCH-A, Schedule A – Excess TFSA Amounts and RC243-SCH-B, Schedule B – Non-Resident Contributions to a Tax-Free Savings Account (TFSA) will assist you in determining your tax liability.
If a TFSA return is required but has not been filed, we may use information provided by your issuers to calculate any tax payable by you.
Tax payable on excess TFSA amount
You have an excess TFSA amount at any time in a year as soon as the total of all TFSA contributions you made in the year (other than a qualifying transfer or an exempt contribution) exceeds the total of your TFSA contribution room at the beginning of the year plus any qualifying portion of a withdrawal made in the year up to that time.
The qualifying portion of the withdrawal is the amount of the withdrawal or the previously determined excess TFSA amount, whichever is less.
Any portion of a withdrawal that does not reduce or eliminate a previously determined excess TFSA amount is not a qualifying portion of the withdrawal and cannot be used to reduce or eliminate any future excess TFSA amount that may be created. For more information, see Examples – Qualifying portion of a withdrawal.
If, at any time in a month, you have an excess TFSA amount, you are liable to a tax of 1% on your highest excess TFSA amount in that month. For more information, see Example 2 – Tax payable on excess TFSA amount.
If an excess TFSA amount exists in the account as of the date of death of a TFSA holder and there is a successor holder, see Excess TFSA amount at the time of death.
The tax of 1% per month will continue to apply for each month that the excess amount remains in the TFSA. It will continue to apply until whichever of the following happens first:
- the entire excess amount is withdrawn; or
- for eligible individuals, the entire excess amount is absorbed by additions to their unused TFSA contribution room in the following years.
For distributions (withdrawals) occurring after October 16, 2009, a distribution from a TFSA that is a specified distribution cannot reduce or eliminate an individual's excess TFSA amount.
This tax is similar to the tax of 1% per month on excess RRSP contributions except that in the case of a TFSA, there is no $2,000 "grace" amount. The tax of 1% on an excess TFSA amount applies from the first $1 of excess contributions.
This tax of 1% per month is based on the highest excess TFSA amount in your account for each month in which an excess remains. This means that the 1% tax applies for a particular month even if an excess amount was contributed and withdrawn later during the same month. For more information, see Example 1 – Tax payable on excess TFSA amount.
For any year in which tax is payable by the holder of a TFSA on an excess TFSA amount in their account, it is necessary to fill out and send Form RC243, Tax-Free Savings Account (TFSA) Return, and Form RC243-SCH-A, Schedule A – Excess TFSA Amounts.
For contributions made after October 16, 2009, a benefit that is income or a capital gain, that is reasonably attributable to "deliberate over contributions" will be considered an advantage and treated accordingly. For more information, see Tax payable on an advantage.
What should you do if you disagree with your assessment?
If you disagree with the assessment or reassessment of your TFSA tax payable, contact us for more information. If you still disagree, you can make a formal objection by sending a filled out Form T400A, Objection – Income Tax Act, or a signed letter to the Chief of Appeals at your tax services office or tax centre within 90 days of the date of the notice of assessment or notice of reassessment.
For more information, see Pamphlet P148, Resolving your Dispute: Objections and Appeal Rights under the Income Tax Act.
Forms and publications
- Form RC243, Tax-Free Savings Account (TFSA) Return
- Form RC243-SCH-A, Schedule A – Excess TFSA Amounts
- Form RC243-SCH-B, Schedule B – Non-Resident Contributions to a Tax-Free Savings Account (TFSA)
- Form T400A, Objection – Income Tax Act
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