Practice National Taxation

TFSA penalty relief: A Canadian tax lawyer's guidance

The CRA acted unreasonably in a recent TFSA overcontribution case

Author: David J. Rotfleisch


David Rotfleisch, CPA, JD
Taxpayers must keep in mind that CRA relief is discretionary, explains David J Rotfleisch, CPA, CA, JD, founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm.

Before discussing the case of Ifi v. Canada (Attorney General), 2020 FC 1150 [concluded in December 2020], an introduction to the underlying law is necessary to provide context. Tax-Free Savings Accounts (TFSAs) are popular savings and investment tools for Canadians. A taxpayer contributes to his or her TFSA using his or her after-tax income for the year. The funds within the TFSA are then generally invested to earn additional income within the TFSA. Funds are withdrawn from the TFSA tax-free, allowing individuals to earn tax-free income. Individuals who have TFSAs can be subject to two different penalties for improperly contributing to their TFSAs. These penalties are not mutually exclusive, meaning a taxpayer can face both penalties.

If a taxpayer is assessed for either of the below penalties, he or she can apply to the Minister of National Revenue to have the penalties waived. The penalties will be waived if the taxpayer removes the funds at issue from his or her TFSA and can show the wrongful contribution(s) occurred due to reasonable error.

Over-Contribution or Excess Contribution Penalty

Each individual is permitted to contribute a certain amount to his or her TFSA in a given year, known as contribution room. Contribution room for a given year is calculated as the TFSA limit for that year plus unused contribution room from previous years and less any TFSA withdrawals from the previous year. For 2020, the TFSA limit is $6,000. Non-residents of Canada do not accrue TFSA contribution room. When an individual contributes more money to their TFSA than the contribution room allows, he or she will face a penalty for the over-contribution/excess contribution. This penalty is one per cent of the amount contributed above the contribution room per month. The penalty continues to accrue until the over-contributed amount is withdrawn from the TFSA.

Non-Resident Contribution Penalty

Individuals who are not resident of Canada for tax purposes can continue to own their TFSAs but should not contribute to their TFSAs. Contributing to a TFSA as a non-resident comes with a penalty. This penalty is 1% of the contributed amount a month until either the contributed amount is removed or the individual becomes a tax resident of Canada.

Ifi v. Canada: The Facts

In 2009, Ms. Ifi, a resident of Canada, over-contributed to her TFSA and received a letter from the Canada Revenue Agency ("CRA"). Ms. Ifi paid the over-contribution penalty. In 2010, Ms. Ifi became a non-resident of Canada for tax purposes but continued contributing to her TFSA as she was unaware non-residents could not contribute to their TFSAs. Her contributions between 2010 and 2013 were small amounts.

In 2014, Ms. Ifi spoke to her bank who informed her she could contribute to her TFSA as a non-resident. In the same year, Ms. Ifi made a large contribution to her TFSA in excess of her contribution room. She made a further three small contributions in 2015, 2016 and 2017. In 2018, she became aware of the non-resident contribution penalty and that the bank had provided her faulty advice. She promptly liquidated her TFSA and withdrew the entire balance.

On advice of the CRA, she filed a request to have the penalties waived. The CRA denied her request, and assessed her for nearly $30,000 dollars in penalties and interest. This amount was nearly all of Ms. Ifi's retirement savings. As such, she requested a second level review of her request to have the penalties waived. Her second request focused on the latter three years, 2014 through 2017, which accounted for most of the penalty amount.

The Minister of National Revenue again denied the penalty relief. The decision Ms. Ifi received indicated the following:

  • Ifi stated that her financial institution did not properly advise her of the TFSA non-resident contribution rules.
  • In 2010 through 2017, Ms. Ifi continued to make excess and non-resident contributions after receiving the 2010 letter about her over-contribution and related penalty in 2009. The individual is responsible for learning about the TFSA rules after being duly notified.

Ifi v. Canada: The Decision

The Canadian tax lawyer acting for the taxpayer filed a review application to the Federal Court. The Federal Court allowed the application for judicial review, and resubmitted the matter for review by a different delegate of CRA. The decision in Ms. Ifi's favour occurred because the reasoning for denying the penalty relief to Ms. Ifi was not reasonable. Moreover, the CRA representative deciding on Ms. Ifi's request at the second level review used the same reasoning as the first level review without addressing Ms. Ifi's arguments.

The faulty advice received from Ms. Ifi's financial institution was not a factor in the judge's decision, simply because the decision from the CRA did not clearly state that the faulty advice was part of the reason for her decision. The CRA's decision was considered unreasonable for two reasons.

  1. The decision stated that Ms. Ifi continued to make excess contributions between 2010 and 2018, portraying her as a repeat over-contributor when in fact the only year in which Ms. Ifi over-contributed in that period was 2014.
  2. Ifi over-contributed in 2009 as a resident of Canada. The penalties for contributions between 2010 through 2017 penalties arose because Ms. Ifi was then a non-resident of Canada. If Ms. Ifi had remained a Canadian tax resident through 2014, she would have had sufficient TFSA contribution room in that year and would not have over-contributed. If she had remained a Canadian tax resident through 2017, she would not have made non-resident contributions. The letter Ms. Ifi received from the CRA concerning her 2009 over-contribution was therefore insufficient to establish Ms. Ifi was aware of the contribution rules that led the 2010 through 2017 penalties because these penalties arose from different errors.

TFSA Contribution Penalty Relief is Discretionary

Though the CRA declined to do so in Ms. Ifi's case, the CRA can waive over-contribution or non-resident contribution penalties. The conditions for waiving these penalties are that:

  1. the penalty occurred due to the taxpayer making a reasonable error; and
  2. the offending contribution and any funds reasonably attributable to the offending contribution are removed from the TFSA.

Taxpayers must keep in mind that this relief is discretionary, and should not assume they will receive this relief.

If the CRA denies a taxpayer's relief request, an application for judicial review of the decision can be brought before the Federal Court. The taxpayer must be aware there is no guarantee of penalty relief at this stage either. Ms. Ifi was able to convince the court to dismiss the CRA's decision but, just the year prior, in Jiang v. Canada (Attorney General) 2019 FC 629, a taxpayer who contributed to her TFSA as a non-resident was denied this relief in part because the taxpayer has the onus to understand the law.

Taxpayers should be aware of the potential penalty pitfalls with their TFSAs and monitor the contributions to ensure over-contribution or non-resident contribution does not occur.

David J Rotfleisch, CPA, CA, JD, is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation. Visit and email David at

Top Image: Author image courtesy David Rotfleisch.

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