Canada Tax: Tax free savings accounts (TFSA) overpayment deadline extended
Federal Finance Minister Jim Flaherty acknowleges there has been genuine confusion over tax free savings accounts - 70,000 Canadians assessed for overpayments to tax free accounts
About 4.7 million Canadians have opted for the tax free accounts since they were introduced by Finance Minister Jim Flaherty.
Under the plan, people set up accounts where money can be saved or invested without paying tax. The maximum annual limit is currently $5,000.
However, some people misinterpreted the rules and opened more than one TFSA, while others withdrew and redeposited money into the account.
In a media statement, the Canada Revenue Agency acknowledged there was genuine confusion about the rules of the tax free savings accounts (TFSA) in its first year.
CRA spokeswoman Caitlin Workman told CBC News the program is relatively simple.
"As long as you understand the rules of the tax free savings accounts (TFSA) and you obey them, and I think most people did, you don't pay tax on the interest you accrue within your TFSA and you don't pay tax when you withdraw the amounts," she said.
However, she said, some taxpayers assumed they could withdraw money from the account and then pay it back without being assessed taxes.
Once money is taken out, she explained, the account can't be topped up in the same tax year.
"They should be waiting for next year to replace it, and there won't be any tax consequences to replace it next year," she said.
According to the Canada Revenue Agency (CRA), every case will be reviewed individually to see if the overpayments were deliberate or a misunderstanding of the rules.
Where appropriate, the Canada Revenue Agency (CRA) said, it will waive taxes on excess contributions for 2009.