ARCHIVED - Ombudsperson's Final Update - Knowing the Rules (2011)

Background

The report was produced as a result of our Office’s examination into how the Canada Revenue Agency (CRA) communicated the Tax-Free Savings Account (TFSA) rules. TFSAs were introduced in 2009 and allow for the income from the account to generally be tax-free, even if it is withdrawn. However, in the first year of the TFSA’s implementation, we received many complaints from Canadians who found the TFSA withdrawal and over-contribution rules confusing. Misunderstanding the rules resulted in complainants indicating they over-contributed. This was problematic, as the CRA imposed a 1% per-month tax on the excess amount put into a TFSA.

The focus of the examination was on the CRA's service to, and treatment of, taxpayers with respect to TFSAs. Our findings revealed:

• The CRA should have been more proactive in informing Canadians about the tax consequences of over-contributing to their TFSA.
• When the CRA became aware of the confusion experienced by some Canadians about the TFSA rules, it reacted by making more information available on its website. However, many Canadians were not aware the information could be found on its website.

To address the findings of the examination, the Taxpayers’ Ombudsperson recommended that the CRA:

1. Take steps to make Canadians more aware of the information it provides about TFSAs on its website, in print, and elsewhere.
2. Continue to update the information available on TFSAs and be proactive in informing Canadians about how to find the tax rules governing TFSAs.
3. Continue to work with the financial services sector to ensure that the CRA's information products about TFSAs are widely available.

The CRA was in agreement with the three recommendations and it developed an action plan with the objective of making Canadians more aware of how TFSAs works.

Update

When the report was published, the CRA issued a News Release^{Footnote 1} outlining its commitment to addressing our Office’s recommendations. The CRA has since provided us with updates and in 2018 informed us it considered its action plan complete.

Specifically, the CRA has taken numerous actions to address the recommendations in Knowing the Rules. For example, some of the improvements the CRA has made include:

• Sending out correspondence to TFSA holders who may have over-contributed, along with a supporting webpage^{Footnote 2} that provides further explanation on the correspondence.
• Improving the TFSA information available on My Account for Individuals^{Footnote 3} ; in general and specific to the user. 
• Updating its Guide RC4466, Tax-Free Savings Account (TFSA), Guide for Individuals.^{Footnote 4} 
• Improving upon and creating new videos, social media content, and outreach materials for TFSAs.

Further, at the same time as reaching out directly to Canadians, the CRA indicates it has been conducting outreach to the financial sector, to ensure it has clear and accurate information on the rules and requirements of TFSAs. In addition, the CRA has also updated its Guide RC4477, Tax-Free Savings Account (TFSA) Guide for Issuers^{Footnote 5}  The guide is comprehensive and, along with Guide RC4466, identifies the penalties Canadians are liable for if they contribute too much to their TFSA.

Conclusion

The key issue in the initial examination was that Canadians were not aware of the rules with respect to over-contributing to their TFSAs. When reviewing the complaints we received in the 2019-2020 fiscal year that referenced TFSAs, it appears complainants now know the rules for TFSAs. The complaints we received primarily relate to delays in correcting residency status and not being informed in a timely matter that an over contribution was made to a TFSA.

We find the CRA has taken appropriate steps to improve and make available the information about the TFSA rules to Canadians and TFSA issuers. 

The Taxpayers’ Ombudsperson finds the CRA has taken appropriate steps to address the recommendations in the Knowing the Rules report.