Per the latest rules, the 2016 contribution limit on the Tax-Free Savings Account (TFSA) is set at $5,500. However, due to certain regulatory quirks, contributors might have some difficulty in determining the precise amount of unused space they have left from previous years.
In an interview with Business News Network’s Paul Bagnell, veteran finance journalist and commentator Dale Jackson shed some light into CRA’s tabulating issues and how these can distort one’s calculations of their contribution space.
Jackson said that the total contribution space is 46,500 for a TFSA opened today. The amount represents all the contribution limits from 2009 stacked up.
“The problem is a lot of people, over the years, who opened up early have been withdrawing money—taking money out, putting money back in. In a lot of cases, [people] are looking after [their] spouses’ TFSA as well, and it can get very confusing,” Jackson noted.
According to Jackson, under normal circumstances, the CRA will inform contributors of how much space they have remaining, but the institution can only backtrack to the end of the previous year as the relevant forms are not submitted immediately.
“The problem is if you’re going on today, it may not be updated between the beginning of this year and February 29,” Jackson warned. Issuers are not required to submit 2015 records until February 29, so people might actually see much higher amounts than they are allowed to contribute.
“If you’re confused, hold off on it. Go back to your own records and hold off until February 29, when CRA has all those [records],” Jackson advised.
Knowing one’s exact limit at any given moment is crucial, Jackson said, as any overpayments would be subject to tax equal to 1% on the excess amount each month—possibly even leading to contributors losing money in their TFSAs.
“The moral of the story is: Don’t count on anybody to keep track of your contributions base except yourself. That way you’ll be safe even if CRA may be confusing,” Jackson concluded.