# TFSA Overcontribution



## amitdi (May 31, 2012)

Hi,
I have my ESOP account as a TFSA. My annual contributions to ESOP are going to be roughly $6500.

To accommodate the contributions, I withdraw from TFSA every December but last year I forgot. So this $6500 is going to eat into my regular limit that I received in 2017 which is fine.

Consider for this post that I have no other TFSA contribution limit and I wont be making any other TFSA contribution.

So to avoid over-contribution fine, I have an option to make my ESOP TFSA into a regular TFSA in September. I can only do that once every quarter. 

But 2nd option, I am thinking is that I will over-contribute and pay the fine. Its not going to be much as the $5500 limit will be crossed towards the end of year, so fine will be $10-15. Am I right?

I read that you can actually withdraw the excess contribution. But is that have be from the same account? My ESOP account wont let me withdraw after my over-contribution. But can I withdraw from my other TFSA account after I over-contribute to ESOP? Does CRA care that the excess withdrawal is from the same account.

Option 4 - I lied about withdrawal from ESOP TFSA. The account does allow me to sell my shares twice a year, so I can technically withdraw after I over-contribute. So thats an option too.

But I want to know option 3, is that allowed?


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## gardner (Feb 13, 2014)

The limit is on your total TFSA holdings in all accounts. You can withdraw from any of your TFSAs to get back under the limit: it does not have to be the one the last dollar went into. I believe the penalties are quite draconian, so I think it's in your interest to make the withdrawal.


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## Eclectic12 (Oct 20, 2010)

Assuming CRA has no reason to believe it is anything other than a run of the mill mistake, the penalty will be 1% of the overage *per month* - unless action is taken to get rid of the over amount.

As some were deliberately flouting the rules, amendments were made so that where CRA determines the overage is a deliberate attempt to gain an advantage, then the penalty can be increased to 100% of any gains.


Cheers


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## gardner (Feb 13, 2014)

Eclectic12 said:


> penalty can be increased to 100% of any gains.


That must be on top of the 1%/month. Otherwise, I'd rather only give up the ill-gotten gains versus the 12% yield that the normal penalty attracts.


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## Eclectic12 (Oct 20, 2010)

The over contribution is $6500 so I doubt CRA would see this as intentionally flouting the rules to achieve big gains. It would be the 1% x $6500 = $65 a month for the penalty.


The "100% gain" was put in for things like intentionally over contributing by $100K, having the stock double then withdrawing the $100K over contribution. Ending up with $98K+ tax free going forward by paying a $12K penalty makes a mockery of the intentions.

Or one of the other situations that had the gov't rush to put add another penalty option was to keep cycling low volume, high volatility stock in then out of the TFSA. One could put it in at a low price then withdraw at a higher price, artificially creating bogus contribution room the following year - while still owing the stock.


http://www.fin.gc.ca/n08/09-099-eng.asp

Cheers


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## amitdi (May 31, 2012)

Thanks for the replies. Yes, taking care of the over-contribution looks like a smart thing to do.


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## amitdi (May 31, 2012)

Eclectic12 said:


> The over contribution is $6500 so I doubt CRA would see this as intentionally flouting the rules to achieve big gains. It would be the 1% x $6500 = $65 a month for the penalty.


Total contribution would be $6500. And since I am not putting anything else in TFSA, my $5500 (new 2017 limit) would take care of it first. Only sometime in the last quarter, I will start over-contributing which will reach max $1000 by Dec 31.


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## gardner (Feb 13, 2014)

So you are not *yet* over contributed, but the wheels are moving to put you in that position in Nov 2017 or something. Interesting. Unfortunately you can't withdraw anything now to make room for the extra $1,000 since the room only comes back in 2018. If you can't turn off the taps on the scheduled contribution, then you may have no choice but to pay the 1%/month penalty on the excess -- if it's $300 in Oct, $600 in Nov and $1K in Dec, then you'd have a bill for $30 in penalties. If the ESOP is "free money" that you can't defer or redirect, then I think your course is clear -- take the free money and pay the penalty.


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## Eclectic12 (Oct 20, 2010)

gardner said:


> So you are not *yet* over contributed, but the wheels are moving to put you in that position in Nov 2017 or something ... you may have no choice but to pay the 1%/month penalty on the excess -- if it's $300 in Oct, $600 in Nov and $1K in Dec, then you'd have a bill for $30 in penalties.


Hmmm ... withdrawals will not create new contribution room until next year but at the same time, withdrawing the over-contribution amount asap from another TFSA should keep the penalty at 1% of the monthly over-contribution amount, will it not?

Instead of a $600 then $1K amount having the penalty ... it should be the $300 x 3 which unless I am missing something, should be $9 or so.


One will have to keep good notes to remember which withdrawals are fixing the over-contribution and which withdrawal is to create extra contribution room the following year.


Cheers


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## gardner (Feb 13, 2014)

Eclectic12 said:


> Instead of a $600 then $1K amount having the penalty ... it should be the $300 x 3


The penalty is per month so if the amounts were:

Oct $300 over --> 3$
Nov $600 over --> 6$
Dec $1000 over --> 10$

a total of $19 penalties in this example.

The overage would be resolved in Jan with the addition of new contribution room -- presumably another $5500.

If the O/P's $6500 is evenly spread through the year at $542/month then the overage only appears in Nov and Dec and the total penalty works out to $15 or so by my reckoning. A chat with the CRA and an undertaking to withdraw the actual overage amounts would possibly get this waived despite technically going over.


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## Eclectic12 (Oct 20, 2010)

gardner said:


> ... a total of $19 penalties in this example.


Perhaps I wasn't clear ... I agree that where one does nothing, the 1% penalty is likely to add up to about $19.

My point is where withdrawals happen the same month as the overage amount are contributed for the same $$$, the penalty runs is capped at one month instead of however many additional months to when new contribution room is granted. Leaving the Oct $300 there means Oct is $3, Nov is $3 and Dec is $3 versus dealing with the Oct $300 after it was made saves the future month's penalties.


The OP may decide it isn't worth the effort for such a small amount.


Cheers


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## gardner (Feb 13, 2014)

Eclectic12 said:


> where withdrawals happen the same month as the overage amount are contributed for the same $$$, the penalty runs is capped at one month


I think I get what you are saying. You cannot avoid getting into an "excess contribution" by prior withdrawal, but once you have an excess contribution, you can THEN remedy that by withdrawing the amount in excess and limit your exposure to the single month. Wash/rinse/repeat.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/txtn/xcssxmpl-eng.html



> 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.


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## OhGreatGuru (May 24, 2009)

Perhaps you should reconsider having your ESOP account as a TFSA.


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## amitdi (May 31, 2012)

All interesting conversation. My company only allows account change decisions between 1 and 15th dates of every quarter.

For this one, between Sep 1 and Sep 15 --> I will have to either

1) Change the TFSA to non-TFSA. Pay taxes for whatever gains I may get from the stock in the non-TFSA account. Also, this will avoid the $19 or thereabouts fine.

2) Do nothing. Pay the $19 fine. 
2B) Maybe get more granular and withdraw some amount every month from Questrade TFSA and reduce that $19 even further.

I am most certain, I will go with option 2. Reason - when I sell the shares ultimately, I will have to pay 2 commissions (I think) because of 2 accounts and the commission for each sell is $30-35 something for Computershare holding company.


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