Olev Edur answers your questions about your rights, personal finance, and estate planning
I overcontributed to my TFSA in 2023 and then contributed again in 2024, not realizing that I was over the limit. When I called the Canada Revenue Agency (CRA) to ask what I should do, I was told that I would have to complete forms RC243 (“Tax-Free Savings Account [TFSA] Return”) and RC243-SCH-A (“Schedule A – Excess TFSA Amounts”) for 2023 and again when I do my tax return for 2024 in order to calculate the penalties. However, the forms don’t mention penalties; they simply indicate that I have to calculate the “tax” payable. Since this is a tax rather than a penalty, is it deductible from my income tax?
Regardless of what it may be called on those forms, this so-called tax is a penalty and therefore not tax-deductible. Section 67.6 of the Income Tax Act clearly states: “In computing income, no deduction shall be made in respect of any amount that is a fine or penalty.”
All you can do is pay up and remember not to make the same mistake again. In fact, if you were to withdraw the overcontribution, pay the “tax” promptly, and then send along a letter with the forms stating that it was an honest mistake and not an intentional tax-avoidance effort, the CRA may even be willing to grant you a degree of leniency.
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